The Effects of Occupational Licensing Evidence from Detailed Business-Level Data

The Effects of Occupational Licensing Evidence from Detailed Business-Level Data

Occupational licensing regulation has increased dramatically in importance over the last several decades, currently affecting more than one thousand occupations in the United States. I use confidential U.S. Census Bureau micro-data to study the relationship between occupational licensing and key business outcomes, such as number of practitioners, prices for consumers, and practitioners’ entry and exit rates. The paper sheds light on the effect of occupational licensing on industry dynamics and intensity of competition, and is the first to study the effects on providers of required occupational training. I find that occupational licensing regulation does not affect the equilibrium number of practitioners or prices of services to consumers, but reduces significantly practitioner entry and exit rates. I further find that providers of occupational licensing training, namely, schools, are larger and seem to do better, in terms of revenues and gross margins, in states with more stringent occupational licensing regulation…The evidence is suggestive of fewer practitioners testing their fit for the occupation in states with more intense regulation, allowing even lower ability practitioners to survive in the market…These findings suggest that the benefits of occupational licensing accrue mostly to owners of training schools.

Marek Zapletal

Center for Economic Studies, US Census Bureau

February 2017

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