The Heterogenous Effects of Occupational Licensing on Labor Market Outcomes: Three Chapters

Abstract

This dissertation is composed of three chapters focusing on the heterogenous effects of occupational licensing on the labor market outcomes including wages, hours worked and employment. The first chapter, “The Labor Market Effects of Occupational Licensing in the Public Sector”, examines the influence of occupational regulation for public sector workers. The study initially examines the probability of a licensed worker selecting into the public sector. Using the probability as a control for these individuals’ risk aversion, it next examines how licensing impacts key labor market outcomes, such as wages, hours worked, and employment in the public sector. The results show that having an occupational license increases the likelihood of working in the public sector. After adjusting for the selection bias of choosing into the public sector, it is found that being in a licensed occupation in the public sector raises wages by about 5.4% and increases hours worked, but reduces employment, even when controlling for other labor market institutions that also are more prevalent in the public sector such as unionization. Overall, the estimates suggest that the social welfare effects of licensing in the public sector are like those for the whole sample, and they generally result in a welfare loss in the public sector. The second chapter, “The Effects of Occupational Licensing on Wage Comparisons Between Asian and White”, do the racial comparison between two racial groups based on the theory that occupational licensing can serve as a job market signal of quality. The licensing requirements associated with licensed occupations can convey more information about workers productivity to employers, while these information are not available if the workers are not licensed, resulting in an asymmetric information. This chapter tries to identify the signaling effects of licensing on the wage differentials between the racial groups of asian and white using the human capital related requirements associated with licensing including training, exam, and continuing education. It finds that the licensing premium for asian males with these licensing requirements is larger than that for white. Licensing, in this case, reduces the racial wage gap between the asian and white male workers. The third chapter, “Occupational Licensing of Opticians and Optometrists—Analyzing the Labor Market Outcomes of Regulating the Eye Care Industry”, tries to analyze the labor market influence of occupational licensing on two occupations in the eye care industry: opticians and optometrists. Opticians and Optometrists are often considered as lower-level and higher-level eye-care occupations, in that they are complements to and substitutes for one another in providing eye-care services. With occupational licensing requirements in place for both occupations, the statutes and regulations determine who can do what task to which extent for the practitioners, and the board for each state would implement such regulations. It tries to use the board compositions for the optician occupation as a proxy for the optometrists’ control over opticians to see how different levels of regulations can differentially influence wages, hours worked, and employments for both occupations. The study finds that if optometrists or other state departments can be on the licensing board for optician licensing, the licensing requirements for opticians would be stricter, and optometrists’ wages and hours worked would be significantly increased. The results find that the board compositions do not seem to have significant impacts on the labor market outcomes for opticians themselves. Optometrists, seem to exert their influence on the optician licensing more through entry barriers, not through the scope of practice.