Labour market impacts of occupational licensing and delicensing: New evidence from China

Abstract

AbstractWe examined the recent occupational regulation changes in China and their labour market impacts. Using data from the China Labor‐Force Dynamic Survey from 2014 to 2018, we found an earning premium of approximately 10 per cent, as well as more employment‐based benefits, for those with an occupational license compared to those without one. Licensed workers reported higher skill‐job task match than unlicensed workers. Our data cover the period of occupational regulation reform in China, when 70 per cent of occupations previously licensed or certified were deregulated. Over this period, the licensing status remained associated with positive earning and employment benefits premiums, and better skill‐job task match at the labour market level. However, delicensing led to a distributional shift in the earning dispersion, especially at the bottom of the earning distribution; earning premiums rose sharply for the 10th to 30th percentiles. Workers directly affected by the licensing reform reported a significant decrease in employment benefits and in subjective job quality measures (i.e. skill‐job task match and voice at work) after delicensing, relative to never‐licensed workers. We suggest that non‐wage compensation is lost in the short term because the signal of competency is no longer valued by employers after delicensing.