Occupational licensure is a regulatory method that requires people to secure a license from the government in order to practice a certain trade or profession. Aspiring workers must meet state-specific educational, training, testing and other requirements to practice in a licensed profession. While some professions, such as physicians and attorneys, are universally licensed in states, a growing number of occupations are now licensed by states. These include jobs that are commonly licensed across all states—e.g., cosmetologists, school bus and truck drivers and emergency medical technicians—as well as others, like funeral attendants and interior designers, which are licensed in a small number of states. Licensing is just one form of occupational regulation, which also includes less restrictive methods, ranging from reliance on market forces to inspections, registration and voluntary certification—a continuum of approaches that are discussed later in this report.
State Policymaker Roles and Considerations
State policymakers play a critical and longstanding role in occupational licensing policies, dating back to the late 19th century when the Supreme Court decision in Dent v. West Virginia established states’ rights to regulate certain professions. Shortly after, states began developing their own systems of occupational regulation and licensing. State policymakers play a central role in developing and shaping these systems by:
- Establishing and modifying licensing requirements for specific occupations.
- Authorizing regulatory boards to license applicants and oversee compliance.
- Reviewing the merits of existing and proposed licensure requirements.
- Convening diverse stakeholders representing legislative, executive branch, consumers, industry representatives and other constituencies to assess regulatory needs and options.
Proposing strategies or guiding principles to improve the state’s overall approach to regulating professions.
Licensing laws are established independently by each state government. In some cases, occupational licensing requirements are established directly by state legislatures in the statute that creates a license. Other states delegate the power to determine licensure requirements to state agencies or state-sponsored independent boards. Often, licensing requirements are set by a combination of statute and regulation, the latter being written by a state government agency or an independent licensing board usually comprised of industry representatives appointed by the state’s governor.
According to a 2015 brief published by the Council on Licensure, Enforcement and Regulation (CLEAR), “civic leaders, elected officials, and courts have struggled to balance legitimate interests in protecting public health and safety with the preservation of free practice.” Policymakers play an important role by assuring that regulatory changes do not remove important consumer health and safety safeguards. “Where there is clear safety and quality rationales for licensure, such as in health care and education, any agenda to relax those licensing restrictions should research exactly how quality and safety can be maintained without licensure,” say researchers in a 2018 article published in the Annual Review of Law and Social Science.
Striking the right balance represents an opportunity for policymakers to achieve important public policy goals, including consumer protection, job creation, workforce mobility and economic growth. Removing employment barriers for unique populations, such as immigrants with work authorization, military families and people with criminal records, offers a powerful lever to achieve multiple policy goals. These include employment growth, reduced recidivism for employed ex-offenders, enhanced geographic mobility and economic stability and opportunity for individuals and their families.
In a 2018 resource for state policymakers, CLEAR encouraged policymakers to analyze the seriousness of the need to license a given occupation and to engage the public in the deliberative process. “There are many situations in which the public needs to be protected from dangers posed by unqualified practitioners, but not every service provided represents a direct threat to the public even if a practitioner is unqualified,” Kara Schmitt wrote in the 2018 “Questions a Legislator Should Ask” report published by CLEAR.
As discussed in Section V, policymakers have taken numerous actions to weigh the costs and benefits of proposed and existing occupational licensing requirements. In a 2018 opinion piece, economist Ryan Nunn pointed to new and comprehensive data sources, such as labor force statistics from the U.S. Department of Labor’s Bureau of Labor Statistics, that provide a more complete picture about the licensed workforce and the fields in which they work. Such data resources can help policymakers maintain perspective about the impacts of licensure on different occupations and make data-informed decisions about those fields in which licensing is prevalent and “economically meaningful,” Nunn suggested. For example, one-quarter of all licensees work in the health care field and account for 18% of the U.S. gross domestic product.
Licensure Trends in the United States
The share of American workers who hold an occupational license has grown significantly over the last several decades, from around 5% of the employed population in the 1950s to up to one-quarter of all employed workers today (Figure 1). Estimates of the share of U.S. workers who have a license vary based on a number of variables, including samples and data collection methods that researchers employ. According to the U.S. Bureau of Labor Statistics (BLS), approximately 22% of civilian U.S. workers had a state license to work in their designated occupation in 2018 and about 2% had a certificate.
Licensure varies depending on occupation type, education attainment, gender, race and ethnicity and other variables. In 2018, BLS data show that almost three-quarters (72.6%) of health care and technical workers had a license in 2018, compared with 28% of personal care and service workers and 17% of the transportation and moving workforce. According to the Council of Economic Advisors, a significant increase in the number of licensed professions accounts for two-thirds of this growth, with authors noting that “licensing has expanded considerably into sectors that were not historically associated with it,” such as sales, construction, personal care and protective services. Of the 1,100 occupations that were licensed in at least one state in 2016, a small number—less than 60—were licensed in every state, illustrating the considerable differences in licensure requirements from state to state.
State-by-State Variation in Licensing. Across states, the percentage of licensed workers ranged from 14% in Georgia to almost 27% in Nevada, researchers found in a 2018 report published by the Institute for Justice (Figure 1). In addition to identifying the percentage of workers licensed and the state’s ranking, the same researchers also developed profiles of each state to highlight state-level economic costs of licensing and workforce characteristics of licensed and certified workforce (e.g., highlighting gender, education level, earnings, race and age).
The minimum requirements and costs to obtain and keep a license to work in the same occupation vary widely across states. So does the licensing process itself, with differences in the availability of distance or online learning for continuing education often required to obtain a license. The lack of uniformity across state lines makes it difficult for workers in licensed occupations to move across state lines and raises questions about the rules’ rationale and impact on health and safety, or a worker’s ability to perform the occupational tasks. Even among states with uniform, or near-uniform, licensing requirements, workforce mobility may be hindered by a lack of reciprocity in credentialing; for example, states often only recognize training from schools and other institutions outlined in statute or regulation.
Potential Benefits of Licensing
When designed and implemented properly, licensing can offer important health and safety benefits and consumer protections and provide workers with clear professional development and training guidelines, as well as a career path. According to a 2018 report published by the Federal Trade Commission (FTC), licensing for some professions can serve a beneficial role by protecting the public’s health and safety. However, the report’s authors note that even when it serves this role, it can create “significant and unintended negative effects” which are discussed in greater detail in the following section. Potential benefits from occupational licensing are summarized below.
Protecting Public Health and Safety. For decades, policymakers have adopted licensure policies to achieve a variety of goals. The FTC’s 1990 report on the costs and benefits of licensure found that well-designed occupational licensing “can protect the public’s health and safety by increasing the quality of professionals’ services through mandatory entry requirements—such as education—and business practice restrictions— such as advertising restrictions.” The report found that occupational licensing helps consumers when they cannot easily assess the professional’s skills and when the costs related to poor quality are especially high, as is the case with emergency health care providers. Economist Jason Furman testified to Congress in 2016 that the argument for licensing “is strongest when low-quality practitioners can potentially inflict serious harm, or when it is difficult for consumers to evaluate provider quality beforehand.” Furman points out that the threats to consumers from incompetent commercial pilots and physicians justify a government intervention; whereas, they face less harm and are better able to assess the quality of florists, barbers or decorators.
Some professional associations argue that licensing protects consumers and promotes public health and safety. The Professional Beauty Association, for example, supports “common-sense, practical changes,” including a move to more standardized licensing criteria across state lines. However, it cautions policymakers about the potential consequences of deregulating the 1.1 million professionals working in the beauty industry, stating that “[f]ormal education and industry regulation is necessary for a professional to learn the techniques, principles, sanitation, and chemical procedures to safeguard consumers, and themselves, against injury and illness.”
Occupational licensing helps consumers when traditional market mechanisms—such as a provider’s concern about possible litigation or damaged reputation—fail to protect them from poorly trained or fraudulent providers. Licensure offers the public an assurance that the individual has met certain educational, training or experience standards.
Potential Benefits to Licensed Workers. Licensed workers “enjoy labor market advantages that go beyond higher wages,” according to a 2018 analysis Nunn wrote for the Brookings Institution. These include longer job tenure, lower voluntary and involuntary part-time status, and lower unemployment rates. In a 2018 study published in the Annual Review of Law and Social Science, authors Sandeep Vaheesan and Frank Pasquale note that occupational rules such as licensing “can help stabilize working- and middle-class wages.” Similar to other minimum wage laws and unionization, the study’s authors find that licensing rules enhance workers’ bargaining power, which can have the effect of raising wages and promoting stable employment. However, Nunn adds that the advantages conferred to one group (licensees) reflect the “exclusive rights” that licensed workers enjoy, “with corresponding disadvantages imposed on unlicensed workers.”
Increased Consumer Confidence. Harvard and Stanford researchers found that, while licensure is not directly associated with improved quality of goods or services, there is a relationship between licensing and increased consumer confidence that can lead to increased economic activity. Additionally, the study argues that licensure can lead to consumers becoming more informed about the licensed service, which makes it more likely that they will “upgrade to higher quality services.” As a result, the researchers find an indirect improvement in the average level of quality provided in a market because of licensing.
Potential Deficiencies and Costs of Licensing
In order to realize the benefits of occupational licensure, rules must “closely match the qualifications needed to perform the job, a goal that is not always achieved or may not be maintained when licensing expands and jobs change,” found a 2015 report by the Council of Economic Advisers and the departments of Labor and Treasury. While occupational licensing may be necessary to protect public health and safety, the FTC asserted in a 2018 report that “unnecessary or overbroad restrictions erect significant barriers and impose costs that harm American workers, employers, consumers, and our economy as a whole, with no measurable benefits to consumers or society.” Moreover, FTC found that the burdens associated with occupational licensure, especially for entry- and mid-level jobs “may fall disproportionately on our nation’s most economically disadvantaged citizens.”
The growth of occupational licensing in the states, and the inconsistent requirements among them, has come at a steep price to workers, employers, consumers and government. A 2018 report published by researchers at the Institute for Justice, found that:
- Nationwide, licensing costs up to 2 million jobs annually, ranging from a loss of 7,000 in Rhode Island to nearly 196,000 jobs in California.
- Licensing may cost the national economy between $6.2 and $7.1 billion each year due to lost output. The losses to states range from $28 million in Rhode Island to $840 million in California.
- When accounting for broader misallocated resources stemming from licensure, other estimates tally the cost to the national economy of between $184 to $197 billion annually. Measuring resources directed away from the most highly valued uses, this may provide a “truer picture of licensing’s costs to the economy.”
Licensure contributes to such economic losses by restricting competition and delivering economic returns to licensed workers above what they would receive without licensing. According to the 2018 Institute for Justice researchers, “[t]hese economic returns are costs borne by consumers, likely through higher prices, and the wider economy, through fewer jobs and reduced economic activity.”
Effects on Employment and Wages
Research indicates that licensing requirements reduce employment in licensed occupations and reduce wages for unlicensed workers relative to their licensed counterparts. According to Nunn’s 2018 analysis for the Hamilton Project, a median licensed worker earned $25.00 per hour while an unlicensed worker earned an average of $18.80. The wage premium for licensed workers is due to several variables, including age, human capital and the barrier to entry that licensing represents. Nunn concluded that licensing results in wage premiums, restricts labor supply in certain occupations and harms unlicensed workers in those occupations.
Occupational licensing requirements—including the need to pass exams, attend continuing education, and pay licensing and renewal fees—present significant barriers to entering a licensed occupation and can reduce total employment in that profession. Upfront costs associated with training, education and fees, may partially offset later benefits that workers may experience as a result of licensure.
The burdens to American workers vary by state and occupation, as shown in Figure 2. The Institute for Justice’s 2017 "License to Work" report ranked states based on the burdens imposed across 102 low- and moderate-income licensed occupations. In terms of the number of occupations a state licenses, Louisiana and Washington licensed 77 of the 102 occupations included in the study while Wyoming licensed just 26 occupations. On average, states license about half (54) of the 102 occupations included in the study. The study also examined education and experience requirements, along with licensure fees and other burdens. While states vary widely along these variables, the study found that 18 states required more than one year of education and experience on average for licensed occupations.
The state comparisons also revealed several inconsistencies across states: Many occupations are licensed in a small number of states, the same occupations have significantly different training requirements across states, and licensure requirements do not always align with public health or safety concerns. Researchers point out that cosmetologists require more than one year of education or experience while emergency medical technicians on average require about one month.
Occupational licensing can result in higher wages for licensed workers, which in turn increases consumer costs. While higher wages benefit licensed workers, wage disparity can lead to “inefficiency and unfairness, including reducing employment opportunities and depressing wages for excluded workers, reducing workers’ mobility across state lines, and increasing costs for consumers.”
Effects on Costs, Competition and Innovation
Research indicates that licensing increases the price of goods and services. Occupational licensing imposes costs in the form of fees and educational requirements on American workers, often because of arbitrary rationale and inconsistent rules across states. The requirements drive away potential workers, especially those for whom the costs of obtaining licensure are too high. By imposing requirements in the form of additional training and education, fees, paperwork and exams, licensing “reduces employment in the licensed occupation and hence competition, driving up the price of goods and services for consumers,” the U.S. Council of Economic Advisers concluded in its 2015 report.
Moreover, according to a study published in the University of Pennsylvania Law Review, occupational licensing restrictions prevent competition in a number of ways. They create barriers that prevent individuals from entering a profession; enable practice restrictions, such as advertising bans; suppress interstate mobility; and expand scope of practice definitions to regulate those in competitor industries. A recent economic investigation from Florida State University found that training, experience and testing requirements reduced the number of small firms and the overall per-capita number of firms in the private security industry.
By imposing costs and barriers to entering different fields, occupational licensing also puts the brakes on innovation and entrepreneurship. A 2015 working paper from the Mercatus Center argued that licensing “standards may become both a floor and a ceiling as declining competition leads to less incentive to innovate and improve.”
Effects on Quality and Public Health and Safety
Researchers find little evidence licensure improves the quality of services or protects consumers from harm. As described earlier, authors of a 2018 report published by the Institute for Justice found licensing burdens “often bear little relationship to public health or safety.” In fact, evidence suggests the most onerous licensure laws may lead to lower-quality services and increased public safety risks.
Licensing reduces the supply of service providers while simultaneously increasing the average operating costs for professionals. Consumers may forego necessary services because prices are too high, or no one is available for hire. This situation can pose a threat to public safety in certain occupations. For example, the inability to legally hire an electrician for repairs may lead to electrocution or fire. A study of private security guard licensing found that lowering licensing burdens increased the supply of private security guards and was related to a significant drop in violent crime.
Effects on Geographic Mobility
Licensing rules limit geographic mobility for licensed workers. State-by-state licensing, according to a 2018 FTC report, can pose “significant hurdles for individuals who are licensed in one state, but want to market their services across state lines or move to another state.” Licensed workers are less likely than unlicensed workers with similar education to move to a new state, in part because they may be required to complete new training and educational requirements or pay fees. Strict occupational licensing requirements limit the value of interstate relocation as a tool to combat unemployment.
According to Furman from the Council of Economic Advisers, “This patchwork of licensing laws restricts worker mobility—which is costly not only for workers, but also for employers, consumers and the economy at large.” The requirements disproportionately affect low-income workers for whom the costs—e.g., for educational, training and licensing fees—represent a larger share of their income than they do for higher-income workers. Moreover, Furman asserted in his 2016 congressional testimony that mobility barriers prevent workers from “matching with the jobs best suited to their skills, which in turn makes our labor market less efficient, reducing productivity and wages.”
FTC encourages state legislatures, state licensing boards and other stakeholders to adopt measures to improve license portability. Moreover, “by enhancing the ability of licensees to provide services in multiple states, and to become licensed quickly upon relocation, license portability initiatives can benefit consumers by increasing competition, choice, and access to services, especially with respect to licensed professions where qualified providers are in short supply.”
Effects on Specific Populations
The barriers described above are especially problematic for low-income individuals, people with criminal records, members of the military and their spouses and immigrants with work authorization. In 2017, Ryan Nunn wrote that, “…[E]xcessive licensing imposes costs on a wide variety of distinct groups, including people with criminal records, immigrants, military families, low-skilled workers, and entrepreneurs—not to mention consumers.” According to Nunn, an “inflexible vision of how work should be organized” has needlessly prevented individuals with criminal records, military veterans and others from entering licensed professions. The burdens facing specific worker populations are summarized below.
Active-Duty Military, Veterans and Spouses. Licensing requirements make it difficult for the 360,000 service members who leave or retire from active duty, guard and reserve service each year, from entering occupations they may be qualified to practice. Licensing is also a burden for the highly mobile population of military spouses, one-third of whom work in occupations that require licenses or certification. More than one in five military spouses reported on a recent survey that their inability to transfer their professional license to a new state was among their greatest employment challenges. Compared to civilians, military spouses are 10 times more likely to have moved across states in the last year, making it difficult and costly for them to obtain a new license every time they move to a new state. The obstacles may deter military spouses from participating in the labor market altogether.
Policy barriers that hinder veterans from finding work include training and licensing costs, lack of recognition for military service in comparable civilian jobs, and licensing requirements that apply to individuals with an honorable discharge. This leaves many veterans, whose circumstances of discharge may have nothing to do with their ability to safely perform a job, at a serious disadvantage in finding work in a field subject to licensing regulations.
Immigrants with Work Authorization. The current licensure system deters skilled immigrants with work authorization from working in jobs for which they have experience and training, hampering their ability to contribute their skills to the U.S. economy. While 30% of working-age immigrants had a college degree in 2010, research suggests that costly and duplicative licensing requirements make it difficult for skilled immigrants with work authorization to find employment that uses their skills.
People with Criminal Records. Having a criminal record can make it difficult, or even impossible, for an individual to work in a given field, especially one that requires an occupational license. In 2016, economist Stephen Slivinski found that having a good job reduces the likelihood that a former offender will commit another crime. “Successful entry into the labor force has been shown to greatly increase the chances that a prisoner will not recidivate,” Slivinski wrote in the landmark “Turning Shackles into Bootstraps” report. However, government-imposed barriers, including occupational licensing requirements, “can be among the most pernicious barriers faced by ex-prisoners seeking to enter the workforce.”
People with a criminal record—one-third of all Americans—can be denied an occupational license in half the states, regardless of whether their criminal record relates to the job they are seeking or how long ago the conviction occurred. Policy barriers facing individuals with a criminal record include:
- Blanket bans. Many state licensing laws include some type of blanket disqualification that include automatic prohibitions for people with criminal records—particularly for felony convictions that are deemed “violent” or “serious” offenses. The National Inventory of Collateral Consequences of Conviction, a searchable database of the collateral consequences in all U.S. jurisdictions, catalogs over 6,000 mandatory occupational licensing consequences for people with criminal records.
- Good Moral Character Clauses. Licensing laws often contain “good-character” or “good moral character” provisions that grant licensing boards broad discretion to deny applications due to an applicant’s criminal history, including convictions for minor offenses and sometimes arrests that never led to a conviction. While public health and safety dictate that some criminal convictions should disqualify applicants for certain kinds of jobs, in many cases, a criminal conviction of any kind may be a bar to licensure. Licensing regulations often refer broadly to “good moral character” as a requirement for holding a license, and in practice this has, in many cases, been interpreted to ban individuals with any criminal record.
The costs associated with licensure can also be a barrier for people with criminal records, particularly those who were formerly incarcerated. The fees related to training, education, acquisition, and maintenance of a license are all challenges for the formerly incarcerated who often have limited income and other court-ordered monetary sanctions that further inhibit their economic standing.