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Federal Reserve Bank of Minneapolis
Staff Report
Analyzing the Influence of Occupational Licensing Duration and Grandfathering on Labor Market Outcomes
Morris M. Kleiner
Suyoun Han
Abstract

The length of time from the implementation of an occupational licensing statute (i.e., licensing duration) may matter in influencing labor market outcomes. Adding to or raising the entry barriers are likely easier once an occupation is established and has gained influence in a political jurisdiction. States often enact grandfather clauses and ratchet up requirements that protect existing workers and increase entry costs to new entrants. We analyze the labor market influence of the duration of occupational licensing statutes for 13 major universally licensed occupations over a 75-year period. These occupations comprise the vast majority of workers in these regulated occupations in the United States. We provide among the first estimates of potential economic rents to grandfathering. We find that duration years of occupational licensure are positively associated with wages for continuing and grandfathered workers. The estimates show a positive relationship of duration with hours worked, but we find moderately negative results for participation in the labor market. The universally licensed occupations, however, exhibit heterogeneity in outcomes. Consequently, unlike some other labor market public policies, such as minimum wages or direct unemployment insurance benefits, occupational licensing would likely influence labor market outcomes when measured over a longer period of time.


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Morris M. Kleiner & Suyoun Han, Analyzing the Influence of Occupational Licensing Duration and Grandfathering on Labor Market Outcomes, Federal Reserve Bank of Minneapolis, Staff Report 556, 23 Oct 2017.
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Keywords: Occupational licensing; Duration and grandfathering effects on wage determination; Hours worked; Work force participation; Labor market regulation
DOI: 10.21034/sr.556
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