Occupational Licensing, Skills, and Labor Market Spillovers


Research on occupational licensing suggests that licenses reduce labor supply and generate a wage premium. Rather than effects on one’s own occupation, I test for the presence of wage spillovers onto other occupations with similar latent skills. Using data from O*NET, I cluster occupations together using Hierarchical Agglomerative Clustering. Leveraging cross-state variation in individual licensing status from the CPS, and using a border discontinuity design on individual ACS microdata, I estimate the labor market spillovers of licenses onto other occupations. I find that a 10 percentage point increase in licensure rates in related occupations reduces individual earnings in one’s own occupation by approximately 2-2.5%. These effects are particularly strong for women, Non-Hispanic black, and foreign-born Hispanic workers. Licensing spillovers shift the composition of workers in related occupations. Contrary to a standard labor supply prediction, overall employment falls in related occupations. Falling earnings combined with falling employment are more in line with the predictions of a monopsony model where licensing reduces the feasibility of outside options and increases search costs.

Working Paper
Samuel Dodini
PhD Candidate

My broad research interests include the economics of labor markets, incorporating insights from behavioral economics, occupational licensing, monopsony power, education, public finance, and urban economics.