Exploring the nexus of occupational licensing and the shadow economy: Evidence from U.S. states

Authors

Daniel A. Gyimah, Wisconsin Department of Corrections
James W. Saunoris, Eastern Michigan University

Document Type

Article

Publication Date

2025

Department/School

Economics

Publication Title

Contemporary Economic Policy

Abstract

This study looks at the relationship between the prevalence of state-level shadow economies and the extent of labor regulations specific to occupational licensing. Occupational licensing leads to higher prices in the formal sector and barriers to entry into formal sector employment, therefore incentivizing individuals to migrate their demand and supply to the underground sector. Using state-level panel data for the 50 U.S. states from 2001 to 2019 and two-stage least squares estimation, we find a positive relationship between occupational licensing in a state and the size of its shadow economy. These results are robust to various considerations.

Comments

J. W. Saunoris is a faculty member in EMU's Department of Economics.

Link to Published Version

DOI: 10.1111/coep.12664

Recommended Citation

Gyimah, D. A., & Saunoris, J. W. (2025). Exploring the nexus of occupational licensing and the shadow economy: Evidence from U.S. states. Contemporary Economic Policy, 43(2), 271–291. https://doi.org/10.1111/coep.12664