The growth of occupational licensing in the United States has resulted in higher labor costs, restricted services and other economic distortions, with relatively limited benefits in practice quality. This essay describes the state of such licensing, discusses pros and cons of the practice, and suggests several proposals to improve the current situation.
Recent assessments of occupational licensing have shown varying effects of the institution on labor market outcomes. This study revisits the relationship between occupational licensing and labor market outcomes by analyzing a new topical module to the Survey of Income and Program Participation (SIPP). Relative to previously available data, the topical module offers more detailed information on occupational licensing from government, with a larger sample size and access to a richer set of person-level characteristics. We exploit this larger and more detailed data set to examine the labor market outcomes of occupational licensing and how workers obtain these licenses from government. More specifically, we analyze whether there is evidence of a licensing wage premium, and how this premium varies with aspects of the regulatory regime such as the requirements to obtain a license or certification and the level of government oversight. After controlling for observable heterogeneity, including occupational status, we find that those with a license earn higher pay, are more likely to be employed, and have a higher probability of retirement and pension plan offers.