Executive Summary 

• Occupational licensing, or licensure, is a form of government regulation that mandates a license to pursue a particular career for compensation, aiming to protect consumers from unsafe and low-quality services.  
• There is a growing movement to reform licensure at both state and federal levels over concerns of a constrained labor supply, which reduces competition and inflates wages, driving up consumer prices.  
• One-third of U.S. workers are required to obtain licensure from a government agency, and lack of a license can result in legal consequences such as substantial fines or even jail time.   

Introduction  

Occupational licensing reform has gained traction at both state and federal levels in recent years, geared towards eradicating unnecessary barriers that restrict employment opportunities. Laws regarding licensure cover nearly one-third of the U.S. workforce, creating barriers to entry rather than a safeguard for the public interest. Although licensing raises the wages of licensees by 7.5% on average, it is at the cost of restricting competition, driving up prices, and job mobility.  

Effects on Competition  

Occupational licensing stifles competition by disproportionately impacting lower-income individuals who often lack the financial resources to meet the mandated criteria, hindering their upward mobility. Athletic trainers, for example, face an average entry cost of $546, which constitutes half of their weekly salary. Imposing financial constraints on jobs that low-income individuals could otherwise access perpetuates the cycle of economic stagnation, in turn limiting innovation and increasing costs for consumers. Data shows that licensed workers are 9.6% less likely to switch careers, representing a 24.0% reduction in occupational entry rates. Additionally, priorly established professionals in fields that now require occupational licensing often remain exempt from new licensing mandates, benefiting from the same artificially high wages as new entrants.  

The Illusion of Quality Assurance 

The innate consensus is that occupational licensing would have the effect of increasing service quality; however, studies show that there is no such correlation. A multi-state analysis comparing consumer ratings on Yelp found that in seven of nine comparisons, more burdensome licensing and no licensing/less burdensome licensing produced practically equivalent results in quality of services. Additionally, the research found that when an additional year of education is required for certified public accountant (CPA) licensing, there was a 15% reduction in first-time candidates for CPA exams, yet no difference in CPA quality based on labor market performance indicators. Licensing is not rationally related to safe and quality service. Businesses’ desires to keep their customers and win over new ones innately incentivize them to uphold the gold standard, regardless of regulatory requirements.  

Source

Alternatives 

As of 2024, 26 states have adopted some form of universal licensing recognition, and others are actively reviewing burdensome licensing laws. Other than policy reform, alternatives to occupational licensing include voluntary certification, registration and mandatory bonding, state certification, and inspections. Service providers can take voluntary actions such as obtaining voluntary accreditation to serve as a testament to their quality of service. Government interventions such as inspection can also be taken as a more tailored option to protect consumers. Registration and bonding, a type of financial guarantee that a contractor purchases from a surety company can also be an alternative to operating legally in a profession while allowing consumers to file a claim or complaint against the contractor’s bond or insurance. Another option would be to establish a commission consisting of government officials, industry experts, policy analysts, consumer advocates, and legal experts to review licensing laws to identify less restrictive consumer protections, assess necessity, and reduce excessive requirements. Furthermore, in the age of social media, reviews regarding service and service quality are far more detailed and valuable than a provider’s license status, as industries prioritize hiring those with good rapport. 

Conclusion  

Occupational licensing is a market distortion that creates artificial scarcity, reduces competition, and restricts economic opportunity. As mentioned, empirical studies demonstrate no substantial difference in service quality between licensed and unlicensed professionals, refuting the initial justification for these regulations. As more states grapple with the idea of licensing reforms, policymakers should make consumer protection without anti-competitive barriers the focal point of legislation in this regard.