How Does Occupational Licensing
Affect U.S. Consumers and Workers?

December 20, 2018

Project Summary

Occupational licensing laws are generally justified as necessary consumer protections. In theory, requiring workers in certain fields to possess licenses stops incompetent service providers from deceiving uninformed customers and gives customers reason to expect a fair quality of service. While licensing may provide consumers with a signal of worker quality, it can also bring negative effects by raising prices and slowing job growth in licensed fields.

Recent surveys illustrate the widespread use of licensing. Estimates vary, but the data show that between a fifth and a third of American workers require a license to legally work. The US Census Bureau’s 2016 Current Population Survey (CPS) finds that among employed civilians, 22.3 percent held an active license in 2016, compared to only 4.5 percent in the 1950s. These numbers were higher for employed women (27.9 percent) and for workers with more education (46.5 percent for those with advanced degrees; 14.2 percent for high school graduates). Occupational licensing experts Morris Kleiner and Alan Krueger find that 29 percent of U.S. workers needed a license in 2008. Because of the dominance of licensing, less than 3 percent of all workers had a voluntary certification, which signals completion of a professional association’s training, but no license in 2016. Figure 1 shows the share of the workforce with occupational licensing requirements from 1950 to 2016. The data clearly shows that there have been substantial increases in licensing requirements since 1950. Between a fifth and a third of American workers were required to have a license to legally work in 2018

This paper examines the existing research on the effects of occupational licensing and concludes with a discussion of possible reforms. Existing studies have yet to find a definitive link between licensing restrictions and their stated purpose of improving service quality. Several studies do find, however, that licensing requirements raise pay for licensed workers, but with a cost: reduced employment and higher consumer prices. Overall, the evidence suggests there may be gains from policy reforms that allow greater room for less restrictive alternatives, such as voluntary certification.

Project Authors
Josh T. Smith
Vidalia Freeman

CGO Undergraduate Research Fellow

Jacob Caldwell

CGO Undergraduate Research Fellow