June, 2017

Occupational Licensing Causes a Wage Premium: Evidence from a Natural Experiment in Colorado's Funeral Services Industry

  • Alexander Tabarrok

    Bartley J. Madden Chair in Economics, Mercatus Center at George Mason University
  • Brandon Pizzola

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Find the article online through the International Review of Law and Economics.

We study the effect of occupational licensing on wages in the funeral services industry using a rare natural experiment. In 1983, Colorado delicensed funeral services. Using difference-in-differences, difference-in-difference-in-differences, and synthetic control specifications, we compare wages in Colorado’s funeral services industry to wages in the US funeral services industry. Overall, the results from difference-in-differences, difference-in-difference-in-differences, and synthetic control specifications suggest occupational licensing causes a wage premium of 11–12%. We find similar results from a standard cross-sectional wage regression using data on individuals in 1990. Thus, this suggests that cross-sectional regressions of wages on occupational licensing in other industries are a good baseline estimate of a causal effect. We also find that licensing increases prices and appears to push consumers away from cremation and towards more expensive burial procedures.