Job Market Signaling through Occupational Licensing

Abstract

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How Much of Barrier to Entry is Occupational Licensing?

“…Of the additional licensing requirements, the only significant effects are a negative effect of acquisition duration longer than one month on white women and a positive marginally significant effect of training for white women. The positive training effect for white women explains a result in our earlier work, where we found a positive wage effect of training requirements for white women (Blair and Chung ). The positive labour supply effect here and the positive wage effect that we documented in our previous article point to white women sorting into licensed occupations with training requirements as a way of signalling ability.…”

“…This result is important because it suggests that licensing only distorts the labour supply of men. We know from Blair and Chung () that women earn a larger licensing premium than men even when the licence has no additional requirements, whereas men only earn a statistically significant licensing wage premium when the licence has some additional attributes. This suggests that occupational licensing may have positive wage effects without an appreciably negative employment effect for women…”

“…For our analysis, we use a combination of datasets to specify the licensing variables: a new dataset on ex‐offender restrictions created by Blair and Chung (), and the 2008 panel (Wave 13) of the SIPP. To define an occupation in our data, we adopt the 2010 Standard Occupational Classification (SOC).…”

“…Again, we employ the 50‐50 rule to decide if an occupation in a state has a particular type of licence requirement . Second, the ex‐offender data created by Blair and Chung () include licence restrictions that felons face in licensed occupations at the occupation‐by‐state level. These data were generated using a database hosted by the American Bar Association (ABA) Criminal Justice Section that specifies the 16,343 legal restrictions faced by ex‐offenders seeking occupational licences.…”

“…() show that additional licensing requirements for manicurist reduce labour supply, whereas Pagliero () shows that requirements like exams are correlated with increased wages for workers. Some licensed occupations also preclude ex‐offenders from obtaining a licence (Blair and Chung ).…”