Regulating Occupations: The Growth and Labor-Market Impact of Licensing

Abstract

Occupational licensing as a labor-market institution has largely operated under the public policy radar screen. Licensing is as a process whereby the federal, state, or local government restricts occupational entry and practice to those whom it grants permission and whom can demonstrate some minimum degree of competency. While there are many media reports and editorials on unions, welfare reform, Social Security, and minimum wages, little attention is given to the impact of the regulation of occupations. Even in the academic literature, few papers analyze the policy implications of licensing.This lack of attention is not due to a diminishing of occupational licensing in the labor market. During the early 1950s, only about three percent of the U.S. labor force was licensed at the state level. During the mid-1980s, persons working in state-licensed occupations had grown to almost 18 percent of the workforce, and the fraction would be even larger if city and county licenses were included. The number and percent of licensed occupations has continued to grow: data from the Department of Labor and the Census Bureau show that the proportion of the workforce employed in state-licensed occupations in 2000 is at least 20.1 percent, a growth rate of almost 12 percent during the past 15 years. In contrast, the minimum wage, the subject of volumes of media attention and public policy debate, has a direct impact on less than 10 percent of the workforce. According to the Council of State Governments, only about 50 occupations are licensed in all states, but more than 800 occupations are licensed in at least one state.