Occupational Licensing—Between Professional Closure and Labour Market Integration

The interdisciplinary collaboration between sociologists and economists aimed to understand the consequences of the liberalisation in the crafts and trades sector in 2004. Traditionally, the crafts and trades sector in Germany has been heavily regulated with strict entry and licensing requirements. In 2004, following a ruling of the European Court of Justice, these requirements were reduced for 53 out of the 94 trades, in which the degree of a Master craftsman was no longer a prerequisite to operate a business. In the remaining 41 trades, the Master craftsman diploma remained the obligatory entry requirement. Prior work investigated the consequences of the 2004 reform in the German labour market. Using German social security records, the econometric analysis found no effects of the liberalisation on average wages or on average employment. This result is surprising because liberalisation should encourage entry into the deregulated trades, which in turn should put a downward pressure on wages. The absence of an average effect masks, however, some heterogeneity: we also find that the skill premium for a Master increases while the employment of Masters decreases relative to employees without a Master in the liberalised professions. Both sets of findings suggest that the deregulation triggered other adjustment processes. There could have been a sizeable increase on the demand side when the licensing requirements were lifted (offsetting the downward pressure on wages), or there could have been changes in the production or organisational structure of firms operating in the crafts and trades. The project investigated some of these margins using firm-level data and matched employer–employee data based on social security records and survey data. At the time of the official end of the project, the results are not yet finalized, and thereforee are not included in this final report.