Research finds that occupational licensing laws depress wages for other workers

I’ve written before that “Occupational licensing laws are barriers to entry which restrict new producers from coming into the market. This keeps prices artificially high, benefiting existing producers at the expense of consumers.” But what about the people who might have gone into these fields if not for occupational licensing laws? What happens to their employment and earnings? A new paper by economist Samuel Dodini titled “The spillover effects of labor regulations on the structure of earnings and employment: Evidence from occupational licensing” investigates that question.

Dodini groups occupations based on shared skill requirements and develops a measure of how much an occupation in a particular state is exposed to licensing among other jobs requiring similar skills. By examining how this exposure differs across state borders, he is able to quantify the impact of occupational licensing on employment and earnings in fields with skills comparable to those that are licensed.

Consistent with the findings of previous research, Dodini finds that, on average, occupations in states with licensing enjoy an earnings premium of about 8% compared to states without such requirements. But he also finds that in states with higher licensing demands, workers in other jobs that require similar skills earn less; specifically, for every 10 percentage point rise in licensing among workers in other occupations with similar skills, average earnings in a given occupation drop by 1.6% to 2.3%. This negative impact is especially strong for female, black, and foreign‐​born Hispanic workers. Overall, Dodini estimates that for every additional dollar gained from an occupational licensing earnings boost, $2.23 is lost due to these ripple effects across other occupations.

Occupational licensing laws don’t just hurt consumers then, they also hurt other workers. This paper is one more piece of evidence supporting their repeal.