Barrier to Entry or Signal of Quality? The Effects of Occupational Licensing on Minority Dental Assistants

Economic theory suggests that occupational licensing can be a barrier to entry that restricts labor supply (Friedman, 1962; Stigler, 1971) or a signal of quality that enhances the labor market (Leland, 1979). This paper studies two types of licenses for one occupation – dental assistant (DA) – to illustrate the competing supply-restricting and quality-signaling effects of licensing on minority workers. Entry-level license for basic supportive procedures provides little information about a DA's competence but is required in some states. This level of licensing has little effect on average wages but widens the wage gap between non-Hispanic white and minority DAs by 8 to 9 percent. A scope-of-practice expansion that allows DAs to take X-rays increases both the average wages and the employment of DAs. Some states require a state-issued permit for X-ray procedures, a license that carries information about a DA's competence. The X-ray permit requirement reduces the wage gap between non-Hispanic white and minority DAs by 7 to 8 percent, suggesting that licensing alleviates statistical discrimination if it reveals information about the holder's productivity