Occupational regulation refers to state approved standards for either being listed as qualified or being licensed to perform certain tasks or jobs prescribed by the government. Standard forms of occupational regulation include licensure, certification, and regulation.
The most restrictive form of occupational regulation is licensure. The nonprofit Council on Licensure, Enforcement and Regulation (CLEAR), which is affiliated with the Council of State Governments, refers to licensing as the “right-to-practice,” and under such laws it is illegal for a person to practice a profession without first meeting state standards (Brinegar and Schmitt 1992). Licensing standards usually involve detailed educational requirements, statements of good moral character, and a test.
A less restrictive form of occupational regulation is certification, in which states grant title (occupational “right-to-title”) protection to persons meeting predetermined standards. Those without certification may perform the duties of the occupation, but may not use the title.
The least restrictive form of occupational regulation is registration. This form of regulation usually requires individuals to file their names, addresses, and qualifications with a government agency before practicing a specified occupation. The requirements may include posting a bond or filing a fee. The regulation of occupations in the United States and other nations falls under this continuum of less restrictive to highly restrictive forms of government regulation.
In the United States, occupational licensing is a fastgrowing form of regulation. During the early 1950s, about 5 percent of the labor force was covered by licensing laws at the state level. By the 1960s, the number of persons working in licensed occupations had grown to more than 10 percent of the U.S workforce, with an even larger number if city and county licenses for occupations are included. The number and percentage of licensed occupations has continued to grow, and data from the Occupation and Employment Survey and the 2000 Census show that approximately 20 percent of the workforce in 2000 was employed in occupations licensed by states (Kleiner 2006).
In 2003 the Council of State Governments estimated that more than 800 occupations were licensed in at least one state, and more than 1,100 occupations were either licensed, certified, or registered. However, only about fifty occupations were licensed in all states. Universally licensed occupations range from doctors, dentists, lawyers, and teachers to barbers and cosmetologists. Occupations that are licensed in some states but not in others include loan officers, respiratory therapists, and electricians. However, cities and counties represent a fast-growing venue for occupational regulation. Local governments regulate many of the construction trades, such as plumbers and electricians, even though state or federal statutes often do not regulate them. There is large variation among the states in licensing occupations. For example, California licenses almost 180 occupations, whereas Kansas licenses fewer than fifty. There are similar variations in the percentage of the occupational workforce that is regulated.
During much of the nineteenth century, few U.S. states required government permission for individuals to work in an occupation. With urbanization and the increasing complexity of tasks, however, occupational affiliation became the dominant association for many workers. Evidence from the academic literature suggests that the quality of services improved when lower-quality purveyors were excluded. Demand for services grew as consumers perceived the regulated services to be of higher quality. Over time, as members of the occupation came to dominate many of the licensing boards, entry requirements tightened and mobility between states and countries was restricted. Prices for licensed services increased and earnings for practitioners became higher than for comparable occupations with similar levels of human capital investment and experience. For consumers who could afford licensed services, quality rose. One of the major controversies in the area of occupational regulation is whether such regulations in fact raise quality or simply restrict competition.
In most cases, the available empirical evidence shows that licensing causes a rise in prices, but its impact on the quality of services rendered is unclear (Cox and Foster 1990). For practitioners of the service, licensing leads to a rise in wages. For example, switching to a licensed occupation from an unregulated occupation raises wages 17 percent in comparison to switching to an unregulated occupation from a regulated one. On average, working in a regulated occupation raises the wage premium approximately 10 to 12 percent relative to similar unregulated occupations. This value is at the lower end of the range of the union wage impact in the United States. Working in the same occupation in a state that requires licensing raises wages 4 percent relative to an unregulated state. Statistical estimates of the costs of licensing show that this form of occupational regulation reduces output in the United States by less than one-tenth of 1 percent of total consumption expenditures annually. Some argue that this is a small price for the potentially enhanced quality that is generated by occupational regulation.
Regulation of occupations in the European Union focuses on restrictions following entry into an occupation to a greater extent than occurs in the United States (Garoupa 2004). In the European Union, occupational regulations generally limit prices and regulate the structure of organizations of licensed workers. Most occupational entry restrictions also regulate the number of individuals who are admitted to schools that train workers for the regulated specialty. The results from statistical estimates show that licensing has a smaller impact on earnings in the European Union than in the United States. Unlike the United States, nations such as Germany are deregulating many of their previously licensed occupations, suggesting that the practice of occupational regulation can be reversed in response to public pressure.
Brinegar, Pamela L., and Kara L. Schmitt. 1992. State Occupational and Professional Licensure. In The Book of the States, 1992–1993, 567–580. Lexington, KY: Council of State Governments.
Cox, Carolyn, and Susan Foster. 1990. The Costs and Benefits of Occupational Regulation. Bureau of Economics, Federal Trade Commission. Washington, DC: Government Printing Office.
Garoupa, Nuno. 2004. Regulation of Professions in the US and Europe: A Comparative Analysis. Paper presented at the American Law and Economics Association Fourteenth Annual Meetings, August.
Kleiner, Morris. 2006. Licensing Occupations: Ensuring Quality or Restricting Competition? Kalamazoo, MI: Upjohn Institute for Employment Research.