Occupational Licensing in the Public Sector

Occupational Licensing in the Public Sector

• Industry Assistant Professor of Business Economics Wenchen Wang

Abstract:

In the United States, occupational licensing is about twice as prevalent in the public sector than in the private sector. However, the influence of occupational regulation for public sector workers, and how it is compared to that of private sector workers, has not been analyzed in detail. Our study examines how licensing impacts key labor market outcomes of wages and part-time working status. 

Our results show that having an occupational license has positive associations on hourly wages and negative associations on the probability of engaging in part-time work in both sectors, mirroring licensing’s general associations. When we disaggregate licensing’s associations by sector, its wage association is less in the public sector. Further, public sector licensed workers have an even lower probability of working part-time. 

We further examine how licensing differentially affects the wage distribution between the two sectors using residualized quantile regression, and find that at the lower wage distribution, licensing’s wage associations are almost the same between the public and the private sector. The difference of licensing’s wage associations between two sectors becomes larger along the upper part of the wage distribution quantiles. Licensing increases the wage premium for private sector workers at the higher wage percentiles, making it more difficult for the public sector to attract and retain high-skilled workers.

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