The Labor Market Effects of Occupational Licensing in the Public Sector

ABSTRACT In the United States, occupational licensing is about twice as prevalent in the public sector as in the private sector. However, the influence of occupational regulation for public sector workers and how it compares with that of private sector workers has not been analyzed in detail. Our study examines how licensing is associated with key labor market outcomes of wages and part‐time working status. Our results show that having an occupational license has positive associations with hourly wages and negative associations in both sectors with the probability of engaging in part‐time work, mirroring licensing's general relationships. 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 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 relationships between the two sectors becomes larger along the upper part of the wage distribution quantiles. Licensing increases the wage premia for private sector workers at the higher wage percentiles, which may make it more difficult for the public sector to attract and retain more highly skilled workers.