Occupational licensing has come under increased scrutiny across levels of government, and desire for reform is bipartisan. The Federal Trade Commission has held two roundtables disseminating research about the effects of licensing on economic opportunity. The Council of Economic Advisers in both the Obama and Trump administrations has suggested that these regulations impede work and opportunity.
A new National Bureau of Economic Research working paper finds that occupational licensing reduces interstate mobility, which in turn reduces labor market efficiency. Janna Johnson and Morris Kleiner of the University of Minnesota examine detailed migration data in the American Community Survey, and analyze the effect of state-specific licensing requirements on interstate mobility.
The growth of occupational licensing has been well documented. In 1950 only about 5 percent of occupations were licensed, growing to around 30 percent today. Previous research has found that being licensed increases wages and reduces the number of new entrants for an occupation.
The effects of occupational licensure on geographic mobility are less well understood. Interstate migration and labor market churn have both fallen over time, and occupational licensing may have contributed to this trend.
Johnson and Kleiner focus on 22 licensed occupations, accounting for 11 percent of the total labor force, that were licensed in all states and that required all individuals in the occupation to have a license. The main variation they exploit for their analysis is that some occupations require passing a national exam, which they call quasi-national licensed occupations. In state-specific licensed occupations the main licensing exam’s content and passing standards vary across states.
The between-state migration rate for workers in state-specific licensed occupations is 36 percent lower than for people in jobs outside of the 22 occupation subset. Workers in quasi-national licensed occupations actually had an interstate migration rate 5 percent higher.
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