Does Occupational Licensing Reduce Job Loss During Recessions?

Licensed workers could be shielded from unemployment during recession since occupational licensing laws are asymmetric—making unlicensed workers an illegal substitute for licensed workers but not the reverse. We test our hypothesis using a difference-in-differences event study research design that exploits cross-state variation in licensing laws to compare the unemployment rate between licensed and unlicensed workers before and after the COVID-19 recession and the Great Recession. Controlling for worker ability, we find that licensing shields workers from a recession-induced increase in the unemployment rate of 0.82 p.p. during COVID-19 and 1.11 p.p. during the Great Recession.