The Problem Occupational licensing has been among the fastest-growing labor market institutions in the United States since World War II. Evidence suggests that licensing has had an important influence on wage determination, benefits, employment, and prices in ways that impose net costs on society with little improvement to service quality, health, and safety. The Proposal A four-tiered approach to reforming occupational licensing practices would include conducting state-level cost-benefit analyses on proposed new requirements, establishing federal-level best-practice models and more-uniform licensing standards across states, allowing for streamlined transfer of licenses as workers move across state lines and, when appropriate, eliminating occupational licensing for certain occupations. Taken together, these proposals would allow employment in affected sectors to grow, improve consumer access to goods and services, and lower prices.

Abstract

Occupational licensing has been among the fastest growing labor market institutions in the United States since World War II. The evidence from the economics literature suggests that licensing has had an important influence on wage determination, benefits, employment, and prices in ways that impose net costs on society with little improvement to service quality, health, and safety. To improve occupational licensing practices, Kleiner proposes four specific reforms. First, state agencies would make use of cost-benefit analysis to determine whether requests for additional occupational licensing requirements are warranted. Second, the federal government would promote the determination and adoption of best-practice models through financial incentives and better information. Third, state licensing standards would allow workers to move across state lines with a minimal cost for retraining or residency requirements. Fourth, where politically feasible, certain occupations that are licensed would be reclassified to a system of certification or no regulation. If federal, state, and local governments were to undertake these proposals, evidence suggests that employment in these regulated occupations would grow, consumer access to goods and services would expand, and prices would fall.