This study tests claims that occupational licenses make consumers better off by screening out workers likely to provide inferior service. Comparing Yelp ratings for service providers in neighboring states with different licensing regimes, this study finds no evidence that licensing raises quality and some evidence that it can reduce it. In eight of nine comparisons, there was no statistically significant difference in quality between licensing regimes. In the last comparison, quality was higher in the unlicensed state than in the licensed one. Together with other research finding high costs and limited benefits from licensing, these findings suggest policymakers should reduce and remove licensing burdens.

Executive Summary

About a quarter of the American workforce must get a permission slip from the government—known as an occupational license—to legally work in their chosen occupations. Getting a license can be costly and time-consuming, requiring fees, exams and many hours—sometimes amounting to several years—of education and experience. Steep licensing requirements serve as a barrier to occupational entry, imposing costs on workers, consumers and the wider economy. But proponents claim they improve service quality by screening out workers likely to provide inferior service.

This study tests proponents’ claims by comparing consumer Yelp ratings for service providers in neighboring states with different regulatory regimes. For four types of service providers—interior designers, locksmiths, manicurists and tree trimmers—we compare quality in licensed states with that in unlicensed states. For two other types of service providers—barbers and cosmetologists, which are both universally licensed—we compare quality in states with more and less burdensome licenses. In all, across the six occupations, we look at nine sets of state pairings.

We limit our analyses to providers located within a certain narrow distance from either side of state borders, which helps ensure that the primary difference between providers is the regulatory regime under which they operate. This creates an apples-to-apples comparison.

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Key Findings

Licensing does not promote safe, quality service and can actually hinder it.

Across eight of nine comparisons, consumers rated services essentially the same in states with different licensing regimes.

But tree trimmer ratings were higher in unlicensed Virginia than in licensed Maryland.

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