by Jim Rose in applied welfare economics, economics of regulation, labour economics, occupational regulation, politics - USA

Some American states regulate twice as many occupations as others. This diversity in federalism strains any public interest explanation of occupational regulation.

Source: Reforming Occupational Licensing Policies | The Hamilton Project – Kleiner and Vorotnikov (2015), based on an analysis of data from a Harris poll of 9,850 individuals conducted in the first half of 2013 (Harris Poll Interactive 2013).



The purpose of occupational regulation is to protect buyers from quacks and lemons – to overcome asymmetric information about the quality of the provider of the service.

Adverse selection occurs when the seller knows more than the buyer about the true quality of the product or service on offer. This can make it difficult for the two people to do business together. Buyers cannot tell the good from the bad products on offer so many they do not buy to all and withdraw from the market.

Any entrepreneur who finds ways of providing credible assurances of the quality of this service or work stands to profit handsomely. Brand names and warranties are examples of market generated institutions that overcome these information gaps through screening and signalling.



Screening is the less informed party’s effort, usually the buyer, to learn the information that the more informed party has. Successful screens have the characteristic that it is unproﬁtable for bad types of sellers to mimic the behaviour of good types. Signalling is an informed party’s effort, usually the seller, to communicate information to the less informed party.

The main issue with quacks in the labour market is whether there is a large cost of less than average quality service, and is there a sub-market who will buy less than average quality products in the presence of competing sellers competing on the basis of quality assurance. This demand for assurance creates opportunities for entrepreneurs to profit by providing assurance.

Mostly disciplinary investigations and deregistrations under the auspices of occupational regulation are for gross misconduct and criminal convictions rather than the shading of quality.