A Welfare Analysis of Occupational Licensing in U.S. States

Morris M. Kleiner, Evan J. Soltas

Research output: Contribution to journalArticlepeer-review

6 Scopus citations

Abstract

We assess the welfare consequences of occupational licensing for workers and consumers. We estimate a model of labour market equilibrium in which licensing restricts labour supply but also affects labour demand via worker quality and selection. On the margin of occupations licensed differently between U.S. states, we find that licensing raises wages and hours but reduces employment. We estimate an average welfare loss of 12% of occupational surplus. Workers and consumers respectively bear 70% and 30% of the incidence. Higher willingness to pay offsets 80% of higher prices for consumers, and higher wages compensate workers for 60% of the cost of mandated investment in occupation-specific human capital. Welfare effects appear more favourable in occupations in which licensing is more common.

Original languageEnglish (US)
Pages (from-to)2481-2516
Number of pages36
JournalReview of Economic Studies
Volume90
Issue number5
DOIs
StatePublished - Oct 1 2023

Bibliographical note

Publisher Copyright:
© 2023 The Author(s). Published by Oxford University Press on behalf of The Review of Economic Studies Limited.

Keywords

  • Human capital
  • Labour supply
  • Occupational licensing
  • Welfare analysis

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