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.
Our results run counter to the theory that licensing improves service quality. Licensing, and progressively stricter forms of it, is not associated with greater service quality across any of our nine comparisons. In fact, in seven of the nine comparisons, we find no statistically significant difference in quality at all. In the other two—our comparisons of cosmetologists in New York (lower licensing burdens) to those in Connecticut and New Jersey (higher licensing burdens)—quality is higher in less burdensome New York and statistically significantly so.
These results add to mounting research suggesting the benefits of licensing are overstated and licensing may even be counterproductive. In light of this research and an even larger body of evidence showing licensing’s negative effects, policymakers should be highly skeptical of occupational licensing. To ensure licenses are not needlessly shutting workers out of occupations, policymakers should carefully consider whether proposed and existing licenses are necessary to protect the public and reject or repeal those that are not. They should also ensure requirements for any licenses deemed essential are only as burdensome as necessary to protect the public. To do otherwise is only to raise barriers, not quality.