Using Migration to Gauge Licensing Strictness in the Legal Profession

Abstract

One fifth of the American workforce is employed in occupations where there are licensing requirements for entry. An extensive literature explores whether these labor supply restrictions lead to higher wages. The evidence is surprisingly mixed, with many studies failing to uncover a positive relationship between licensing strictness and wage rates. The uneven results of this literature are troubling given that the two main theories of occupational licensing each imply that licensure increases a profession’s wages. Regardless of whether it protects the public interest by excluding low-quality service providers or is used by those currently in a profession to limit competition from future entrants, theory predicts that occupational licensing raises wages in regulated professions.Research on the impact of occupational licensing faces the difficulty of accurately measuring licensing strictness. Many occupations are licensed at the state (or local) level, and rules can vary widely. A jurisdiction’s licensing requirements can be stricter than most others in one dimension but less severe in another. Even careful analyses sometimes yield only a crude measure of licensing strictness. As a result, it can be difficult to determine whether a study’s inability to find a connection between licensing strictness and wages results simply from poor measurement of licensing severity.