This study provides an important contribution to the literature on U.S. absolute economic mobility and income inequality. The potential of occupational licensing to influence labor opportunities, economic mobility, and income distribution outcomes has been mostly unexplored up to this point in this literature. Our analysis builds on the pioneering work of Chetty et al. and the Institute for Justice. We should note that the nature of the data (cross sectional) limits our ability to perform causal inference. In other words, we cannot say that growth in licensing caused reductions in economic mobility or increases in income inequality. Instead, the findings of this paper shed light on a suggestive relationship between the growth of occupational licensing, the economic mobility of low income Americans, and income inequality. More specifically, our analysis suggests that growth in occupational licensing of low- and moderate-income occupations may be limiting opportunities for upward economic mobility (a 1.7% to 6.7% reduction evaluated at the mean). Licensing shrinks the pool of potential laborers by creating barriers to entry and this reduction in mobility also seems to relate to increases in income inequality (3.9% to 15.4% evaluated at the mean) as measured by U.S. county level Gini coefficients.
Edward Timmons, Brian Meehan, Andrew Meehan, and John Hazenstab
April 10, 2018