DP12577 Occupational Licensing in the European Union: Coverage and Wage Effects

Author(s): Maria Koumenta, Mario Pagliero
Publication Date: January 2018
Keyword(s): licensing, occupational regulation
JEL(s): J31, J44
Programme Areas: Labour Economics, Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12577

We present the first EU-wide study on the prevalence and labour market impact of occupational regulation in the EU. Drawing on a new EU Survey of Regulated Occupations, we find that licensing affects about 22 percent of workers in the EU, although there is significant variability across member states and occupations. On average, licensing is associated with a 4 percent higher hourly wages. Using decomposition techniques we show that rent capture accounts for one third of this effect and the remaining is attributed to signalling. We find considerable heterogeneity in the wage gains by occupation and level of educational attainment. Finally, occupational licensing increases wage inequality. After accounting for composition effects, licensing increases the standard deviation of wages by about 0.02 log points.