The costs of failing a licensing exam, for example, in dentistry is the estimated present value cost of failing the exam, which was $54,000 in 1997 dollars when reduced earnings growth, lost experience, and nominal earnings growth differences are accounted for over time. Long residency requirements or the necessity of retaking parts of the new sections of the original licensing exam further impede geographic mobility across states or local jurisdictions. Florida, Arizona and California have traditionally had longer continuous residency requirements for many regulated occupations, presumably to keep persons from states with more inclement weather from moving to the state and working in the occupation during the winter months. Other states focus on unique parts of an occupation, such as the “gold foil” method of filling teeth in California, that are only examined within their state’s licensing exam.
The restrictions of supply involved in occupational licensing have led to charges that licensing results in discrimination against historically disadvantaged minority groups. A disproportionate impact on minority groups might occur either because minorities have a disproportionately difficult time in passing the licensing examinations, or because minorities are underrepresented among the incumbents within occupations who are protected by licensing. However, the limited evidence shows little effect of licensing on restricting African Americans from the traditionally regulated occupations.
Morris M. Kleiner
Journal of Economic Perspectives