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:
- The share of the workforce with a license varies across the 50 states and District of Columbia from 14 percent in Georgia to 27 percent in Nevada. Nationwide, this study finds roughly 19 percent of workers are licensed. Although lower than previous estimates (ranging from 22 percent to 29 percent), this finding confirms licensing has grown substantially since the early 1950s, when just 5 percent of American workers were licensed.
- Across 36 states where the dataset permitted state-level estimates, licensing’s toll on jobs ranges from 6,952 (Rhode Island) to 195,917 (California). At the national level, licensing may cost the economy between 1.8 and 1.9 million jobs.
- In the same 36 states, estimates of lost economic output range from $27.9 million (Rhode Island) to $840.4 million (California). Nationally, licensing may cost the economy between $6.2 and $7.1 billion each year in lost output. Also known as deadweight loss, lost output provides a conservative measure of economic value lost due to licensing.
- A broader measure of lost economic value, misallocated resources, finds steeper costs across the 36 states, with estimates ranging from $675 million (Rhode Island) to $22.1 billion (California). At the national level, licensing may cost the economy between $183.9 and $197.3 billion each year in misallocated resources. Unlike deadweight loss, this measure accounts for resources directed away from their most highly valued uses, likely providing a truer picture of licensing’s cost to the economy.
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.