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Are estimates of the "natural experiment" in the German crafts sector causal?

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  • Fredriksen, Kaja
  • Runst, Petrik

Abstract

Difference-in-difference estimation is a popular tool to gauge the effects of economic policies. In recent years, many papers have applied this tool to the German deregulation of the crafts sector in 2004 to draw lessons regarding the economic effects of occupational licensing. However, a difference-in-difference estimator is only valid when the treatment and comparison units would have evolved similarly in absence of the reform, an assumption which is non-testable. This paper investigates whether the policy insights based on existing studies hold water when the synthetic control method is used whereby comparison units are selected in systematic ways in order to resemble treated units. Overall, this robustness-check confirms the findings using difference-in-differences estimation, yet it also yields some interesting nuances notably regarding market exits.

Suggested Citation

  • Fredriksen, Kaja & Runst, Petrik, 2018. "Are estimates of the "natural experiment" in the German crafts sector causal?," ifh Working Papers 16/2018, Volkswirtschaftliches Institut für Mittelstand und Handwerk an der Universität Göttingen (ifh).
    • Handle: RePEc:zbw:ifhwps:162018
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    References listed on IDEAS

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