NCPA - National Center for Policy Analysis

Is Occupational Licensing Necessary?

August 24, 2011

Restrictions on who can and cannot practice a certain profession have increased significantly in recent years.  Occupational licensing -- the most onerous restriction -- requires people to pass tests and meet other criteria before they can practice a trade.  It is a barrier to employment, disproportionately affecting low-income and immigrant workers, and frequently benefitting established practitioners by limiting competition from new entrants, says Courtney O'Sullivan, an editor with the National Center for Policy Analysis.

According to labor economists Morris M. Kleiner and Alan B. Krueger:

  • In the 1950s, less than 5 percent of U.S. workers were in occupations that required a license.
  • By the 1980s, that number was almost 18 percent.
  • In 2006, 29 percent of workers were in occupations that required a license.

Advocates of licensing are typically well-established practitioners of that trade.  They have an incentive to reduce the number of competitors and often claim that licensing will safeguard consumers from unqualified providers.  However, there is little evidence that occupational licensing increases product quality.  For example:

  • The Institute for Justice asked florists to rate the quality of 25 arrangements from licensed florists in Louisiana and 25 arrangements from unlicensed florists in Texas. The judges could detect no difference in quality.
  • In 2001, the Canadian Office of Fair Trading looked at 15 academic studies that consider the effects of occupational regulation on product quality and found regulation had a positive impact in just two instances.

Many jobs could be performed by unlicensed individuals at a lower cost, without sacrificing safety or quality.  Licensing decreases the rate of job growth by an average of 20 percent and costs the economy an estimated $34.8 billion to $41.7 billion per year, in 2000 dollars, reports the Reason Foundation.

Registration and voluntary certification by professional and vocational organizations could offer comparable quality and safety standards, without the costly barriers imposed by licensing, says O'Sullivan.

Source: Courtney O'Sullivan, "Is Occupational Licensing Necessary?" National Center for Policy Analysis, August 24, 2011.

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