Co-funded with the W. K. Kellogg Foundation
Occupational licensing affects nearly 30 percent of the labor force and over 800 occupations are licensed in at least one state. Doctors, lawyers, teachers, barbers, plumbers, electricians, contractors, among others, are required to have a license to legally practice. Proponents of licensing argue that these laws prevent unqualified candidates from practicing, and that licensing provides a minimum certified level of quality and safety to consumers. Opponents argue that licensing mainly secures higher rents for those in licensed occupations, raising prices and harming low-income consumers, who may not be able to afford their preferred level of service, or low-wage workers, who may not be able to afford the investment licensing requires. Opponents also argue that licensing is unnecessary in an environment in which reputations are transparent.
Studies have shown that licensing raises wages, raises prices for consumers, and deters entry. Economist Brad Larsen will explore the effects of licensing laws on the distribution of the quality of services provided and the extent to which these laws differently affect low- and high-income consumers. He will also study the extent to which reputation mechanisms—such as ratings systems on job search websites—can substitute for licensing laws.