This study offers new evidence that licensing barriers are widespread across the United States and that they impose substantial economic costs at both the state and national levels.
In line with previous research, this study confirms that licensing is large and has grown substantially since the early 1950s, with about one-fifth of U.S. workers now having a government-mandated license to work and state-level licensing rates ranging from 14 to 27 percent. Also in line with previous research, this study confirms that the costs of licensing—to workers, to consumers and to the wider economy—are likewise large.
Because licensing barriers shut some aspirants out, they may cost the national economy upwards of 1.8 million jobs. And aspiring workers are not the only ones who lose with licensing. Licensing barriers also cost consumers and the wider economy billions of dollars—$6.2 billion in lost output and $183.9 billion in misallocated resources. This is because occupational licenses restrict competition, effectively giving licensed workers a monopoly—and allowing them to command higher economic returns for their services than they could absent licensing.
Higher economic returns for workers with licenses might sound like a social good. However, it is important to remember that they do not reflect additional value created in a competitive market, with most research finding no relationship between licensing and service quality. Instead, higher returns reflect licensed workers’ government-granted monopoly. These gains, in short, are a transfer of wealth from consumers to licensees. And, as our results show, they add up, potentially reducing growth in economic activity at both the state and national levels.
It is impossible to forecast precisely what effect reforming occupational licensing would have on the economy. However, given our estimates of the costs of licensing and ample research showing that licensing rarely improves outcomes for consumers, it seems likely that eliminating needless licensing burdens—and, if necessary, replacing them with less restrictive alternatives such as certification that do not give regulated workers a monopoly1—would translate into higher employment, higher economic output, and a more efficient and equitable allocation of resources. By and large, when markets are more competitive, both workers and consumers win.