Job Market Signaling through Occupational Licensing

Peter Q. Blair, Bobby W. Chung

NBER Working Paper No. 24791
Issued in July 2018, Revised in September 2019
NBER Program(s):Development of the American Economy, Economics of Education, Industrial Organization, Law and Economics, Labor Studies

We show that an occupational license serves as a job market signal, similar to education in the Spence model. In the presence of occupational licensing, we find evidence that firms rely less on observable characteristics such as race and gender in determining employee wages. As a result, licensed minorities and women experience smaller wage gaps than their unlicensed peers. Black men benefit from licenses that signal non-felony status, whereas white women benefit from licenses with a human capital requirement. Certification, a less distortionary alternative to licensing, generates an equivalent wage premium for white men, but lower wage premiums than licensing for women and black men.

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Document Object Identifier (DOI): 10.3386/w24791