Occupational Licensing and Retirement in US – They are less likely to choose to change careers but more likely to reduce work hours in transitioning out of the workforce

Ways of leaving the labor force has been an understudied aspect of labor market outcomes. Labor market institutions  such as occupational licensing may influence how individuals transition to retirement. When and how workers transition from career jobs to full retirement may contribute to pre- and post-retirement well-being. Previous investigations of retirement pathways focused on the patterns and outcomes of retirement transitions, yet the influence of occupational licensing on retirement transition has not been analyzed. In this study, we use the Current Population Survey and Survey of Income and Program Participation to investigate how occupational licensing influences American later-career workers’ choice of retirement pathways. Our results show that licensed workers are less likely to choose to change careers but more likely to reduce work hours in transitioning out of the workforce. These results are consistent with the findings that licensed workers receive more benefits in the form of preferable retirement options, suggesting that these workers tend to have higher wages, benefits, and flexibility even toward the end of their careers.

We examine the role occupational licensing plays for workers at the end of their work careers. We use two different data sets and two different methods to investigate the influence of occupational licensing on older workers’ choice of retirement pathways. The results from these estimations are consistent with our hypotheses; licensed workers are less likely to choose the pathways that involve the loss of career benefits and more likely to select greater flexibility toward the end of their careers. These results are consistent with the theoretical predictions that licensed workers tend to have higher wages and more benefits and flexibility even toward the end of their careers. Occupational licensing generally results in higher wages and benefits, and our estimates suggest that regulated workers have more labor market flexibility regarding hours of work and are less likely to switch occupations.

Retaining older workers is an important human resource issue for business and an active research agenda for analysts of labor policy. Phased retirement is an option that allows for retaining older workers and maintaining employees’ occupation- and firm-specific human capital while training new workers in the essential operations of the firm. From a business perspective, however, there are several concerns about its feasibility and efficiency. For instance, can two part-time workers perform as well as one full-time worker? Also, will part-time workers exert the same level of work attachment and effort as full-time workers? Our results imply that occupational licensing contributes to older workers’ favorable choice of retirement pathways (i.e., phased retirement), since moving into a licensed occupation may reflect a career choice. Still, an employer’s support for maintaining licensing status, including occupational training and costs of renewal, will likely contribute to retaining older workers by extending the added commitment to the occupation as well as the firm. Government assistance in maintaining licensing status for self-employed older workers will also contribute to retaining older workers and their human capital in the workforce.

Although we investigate the influence of occupational licensing by utilizing different data sets and methods, there are limitations. The CPS does not provide the reasons for taking bridge employment, and the SIPP is limited in accounting for them because of the insufficient sample size, although there are questions asking about the reasons for leaving FC employers and reducing work hours. The reasons for leaving career jobs, especially the voluntariness of leaving, are important because they are associated with life satisfaction and post-retirement well-being (Dingemans and Henkens, 2014). We predict that licensed workers are more likely to have control over their retirement transition, but further investigation is needed to confirm this prediction.

Therefore, future research should extend these findings to investigate the degrees of control over the retirement transition by accounting for the voluntariness of leaving career jobs and different retirement pathways. More broadly, how occupational licensing affects these should be studied (Nunn, 2018). We also suggest using other econometric approaches, such as the one in Callaway and Sant’Anna (2021), to obtain the effect of occupational licensing on the choice ofretirement pathways and duration of labor force participation.

Chosen excerpts by Job Market Monitor. Read the whole story @ The Influence of Occupational Licensing on Workforce Transitions to Retirement | NBER