NCPA - National Center for Policy Analysis

Occupational Licensing On The Rise

January 19, 2001

Occupational licensing restricts the freedom of consumers or employers to choose whether or not they are willing to pay more for someone with greater state-documented skills relative to someone with fewer formal qualifications. The main benefit claimed for occupational licensing is improved quality for those persons receiving the service. However, restricting entrance into a field tends to raise prices, due to reduced competition.

Thus it is not surprising that licensure is popular among those practitioners who benefit:

  • About 18 percent of U.S. workers are covered by some type of occupational licensing.
  • The percentage of workers covered by either state or local licenses is rising as the demand for regulated services grows and more occupations are regulated.
  • More than 800 occupations are licensed in at least one state, ranging from fortune-tellers in Maryland to rainmakers in Arizona, according to the Council of State Governments.
  • Occupational licensing increases hourly wages, on average, about 27 percent for higher wage occupations such as dentistry, but has had virtually no impact on wages for cosmetologists or barbers.

Skeptics of occupational licensing point out that empirical evidence on the increase in quality, greater level of training or avoidance of catastrophes is often thin or nonexistent. Moreover, they argue that any beneficial effects of occupational licensing are more than offset by the monopoly effects of restricting the supply of practitioners.

Certification is an alternative to licensing in which some agency attests to a person's qualifications, but the certificate is not legally required for the practice of that occupation. It is frequently proposed as an alternative way of assuring quality that has less effect on wages or prices because it does not restrict supply.

Source: Morris M. Kleiner, "Occupational Licensing," Journal of Economic Perspectives, Fall 2000.

 

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