Impact of Occupational Licensing on Wages and Wage Inequality: Canadian Evidence 1998–2018

Abstract

Based on Labour Force Survey data for Canada over the period 1998 to 2018, we find occupational licensing raised average real wages from 6.1% in 1998 to 13.8% by 2018, slightly less for propensity score matching estimates, suggesting the effect is somewhat lower after adjusting for unobservable factors that can affect pay. Unconditional quantile regressions indicate the licensing effects on wages are greater at the higher ends of the wage distribution, with those inequality enhancing effects becoming more pronounced over time. In contrast, the union wage premium declined steadily from 9.2% in 1998 to 5% in 2018, with a substantial premium at the bottom of the wage distribution but a steady decline at the top, becoming negative at higher parts of the wage distribution, with those equality enhancing effects becoming less pronounced over time. Overall, the estimates for Canada indicate that occupational licensing contributes to wage inequality, and the effect is increasing over time, while unions reduce overall wage inequality, but this equalizing effect is decreasing over time.