The Labor Market Effects of Occupational Licensing in the Public Sector

Occupational licensing is more prevalent in the public sector in the U.S. relative to the private sector, but the influence of occupational regulation for these workers has not been analyzed in detail. Our study initially examines the influence of occupational licensing on the choice of working in the public sector. We next examine how licensing impacts key labor market outcomes, such as wages, hours worked and employment in the public sector. Our results find that occupational licensing increases the likelihood of working in the public sector. However, being in a licensed occupation in the public sector raises wages by about 6 percent, 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 status. Overall our estimates suggest that the social welfare effects of licensing in the public sector is similar to the private sector, and it generally results in a welfare loss in this sector of the economy. The empirical analysis in this paper uses both the SIPP and CPS data.