Private sector unions have almost disappeared, but occupational licensing is all the rage. Almost 30% of all workers need a license to do their jobs – and licensed workers earn roughly a 15% wage premium.
Occupational credentials are one common licensing requirement. According to this working paper by Kleiner and Krueger, 43% of all licensed workers are required to have a college degree. This is consistent with one of Arnold’s favorite alternatives to the signaling model: Employers value degrees in useless subjects because they’re legally required to do so.
Still, the question remains: How much of the return to education is a disguised licensing premium? Kleiner and Krueger create a brand new data set that allows them to directly answer this question. Even though they find a large licensing premium, they conclude that licensing only mildly inflates the return to education. Their results:
I freely admit that licensing isn’t the only way that government can artificially inflate the demand for useless degrees. Government pay scales are another plausible candidate. But still, given the prevalence of licensing and the substantial licensing premium, I would have expected a larger effect.
READER COMMENTS
Jose
Mar 20 2012 at 7:27pm
The case is especially problematic when inorder to obtain a license i.e. Series 7, one needs to be sponsored by some firm to even sit for the exam.
HispanicPundit
Mar 21 2012 at 12:16am
Curious, did you have Krueger as your professor at Princeton? How was he? I know he is liberal, but any personality traits, or academic perks, you can share that might be interesting? He is in the spotlight more lately.
GregS
Mar 21 2012 at 8:44am
The caption says there is a control for “work experience squared.” Do you know anything about this? Are there economic theories to explain why there is a squared term for work experience? A post on that topic would be interesting.
Bill Hocter
Mar 21 2012 at 9:22am
Perhaps some degrees are more useful than they appear. Carl Icahn majored in philosophy. I’ve never regretted my Classical Greek major.
Eric Evans
Mar 21 2012 at 9:23am
Oh boy, statistics inferred from a phone survey? That’s the bees knees for reliability. Whatever you can call good data and plug into an equation for analysis, huh?
Comments are closed.