How State Occupational Licenses Affect Jobs and Salaries

Abstract: We present new data on regulatory restrictions across states and occupations between 2017 and 2022 to study the labor market effects of occupational licensing. First, we document three stylized facts: (a) regulatory restrictions across states and occupations have grown by nearly a factor of three since 2019, (b) increases in regulatory restrictions are concentrated in occupations with lower median hourly wages and higher within-occupation inequality, and (c) states that expanded regulatory restrictions tend to have lower Republican vote shares. Second, exploiting variation across occupations within the same state and year, we find that a 10 percent rise in regulatory restrictions leads to a 3.3 percent rise in hourly wages but a 4.4 percent decline in employment. Both the employment and wage effects are concentrated in low-wage jobs, as well as among respondents with professional licenses, even after we control for demographic factors and industry differences.

Keywords: employment, labor market, occupational licensing, regulation, wages

JEL codes: H1, J01, J18, J24, J38, J4, J44, J62, J8, J88, K0, K2, K31