Occupational licensing is widely recognized as one of the most important labor market issues in the United States. An occupational license is, put simply, government permission to work for pay in a particular occupation. Securing a license may require education or experience, exams, fees, and more, which means licensing can pose a major barrier to entry for aspiring workers.
Taking advantage of a uniquely large dataset, this study offers the first state-level estimates of key economic costs from occupational licensing—lost jobs and reduced economic activity—for a large sample of states. It also confirms earlier research demonstrating licensing’s growth nationwide and its considerable costs to the national economy. Results include:
Licensing likely leads to such economic losses because it restricts competition, generating economic returns to licensees above what they would make absent licensing. These economic returns are costs borne by consumers, likely through higher prices, and the wider economy, through fewer jobs and reduced economic activity.
These costs are substantial. Given our cost estimates and ample prior research showing licensing rarely improves outcomes for consumers, it seems likely that eliminating needless licensing burdens—and, if necessary, replacing them with less restrictive alternatives—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.