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

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  • Morris M Kleiner
  • Evan J Soltas

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.

Suggested Citation

  • Morris M Kleiner & Evan J Soltas, 2023. "A Welfare Analysis of Occupational Licensing in U.S. States," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(5), pages 2481-2516.
    • Handle: RePEc:oup:restud:v:90:y:2023:i:5:p:2481-2516.
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    File URL: http://hdl.handle.net/10.1093/restud/rdad015
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    Cited by:

    1. Veronika Lukesch & Thomas Zwick, 2024. "Do outside options drive wage inequalities in retained jobs? Evidence from a natural experiment," British Journal of Industrial Relations, London School of Economics, vol. 62(1), pages 127-153, March.
    2. Dean, James & Geloso, Vincent, 2024. "Poverty spells and economic freedom: Canadian evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 224(C), pages 282-296.

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