Job Market Signaling through Occupational Licensing

Abstract Among men, the black-white wage gap is as large today as it was in 1950. We test whether the black-white wage gap is due to asymmetric information using newly collected data on occupational licensing laws that ban workers with criminal records. We find evidence supporting this hypothesis. The licensing premiums for black men are largest in licensed occupations that restrict felons—particularly in states with Ban-the-Box laws and at small firms. In these contexts where a worker's criminal history is difficult to infer, we find that occupational licensing reduces asymmetric information and reduces the racial wage gap.