A Model of Occupational Licensing and Statistical Discrimination / Peter Q. Blair, Bobby W. Chung.

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Blair, Peter Q

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w28227.Publication details: Cambridge, Mass. National Bureau of Economic Research 2020.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We develop a model of statistical discrimination in occupational licensing. In the model, there is endogenous occupation selection and wage determination that depends on how costly it is to obtain the license and the productivity of the human capital that is bundled with the license. Under these assumptions, we find a unique equilibrium with sharp comparative statics for the licensing premiums. The key theoretical result in this paper is that the licensing premium is higher for workers who are members of demographic groups that face a higher cost of licensing. The intuition for this result is that the higher cost of licensing makes the license a more informative labor market signal. The predictions of the model can explain, for example, the empirical finding in the literature that occupational licenses that preclude felons close the racial wage gap among men by conferring a higher premium to black men than white men. Moreover, we show that in general the optimal cost of licensing is non-zero: an infinitely costly license screens out all workers while a cost less license is no screen at all.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w28227 (Browse shelf(Opens below))	Not For Loan

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December 2020.

We develop a model of statistical discrimination in occupational licensing. In the model, there is endogenous occupation selection and wage determination that depends on how costly it is to obtain the license and the productivity of the human capital that is bundled with the license. Under these assumptions, we find a unique equilibrium with sharp comparative statics for the licensing premiums. The key theoretical result in this paper is that the licensing premium is higher for workers who are members of demographic groups that face a higher cost of licensing. The intuition for this result is that the higher cost of licensing makes the license a more informative labor market signal. The predictions of the model can explain, for example, the empirical finding in the literature that occupational licenses that preclude felons close the racial wage gap among men by conferring a higher premium to black men than white men. Moreover, we show that in general the optimal cost of licensing is non-zero: an infinitely costly license screens out all workers while a cost less license is no screen at all.