In order to work legally, 29% of U.S. workers require an occupational license. We show that occupational licensing reduces the racial wage gap between white and black men by 43%, and the gender wage gap between women and white men by 36%-40%. For black men, a license is a positive indicator of non-felony status that aids in firm screening of workers, whereas women experience differentially higher returns to the human capital that is bundled with occupational licenses. The information and human capital content of licenses enable firms to rely less on race and gender as predictors of worker productivity.
Occupational Licensing Reduces Racial and Gender Wage Gaps: Evidence from the Survey of Income and Program Participation
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Second version, October 17, 2017