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A Welfare Analysis of Occupational Licensing in U.S. States

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  • Morris M Kleiner
  • Evan J Soltas

Abstract

We assess the welfare consequences of occupational licensing for workers and consumers. We estimate a model of labour market equilibrium in which licensing restricts labour supply but also affects labour demand via worker quality and selection. On the margin of occupations licensed differently between U.S. states, we find that licensing raises wages and hours but reduces employment. We estimate an average welfare loss of 12% of occupational surplus. Workers and consumers respectively bear 70% and 30% of the incidence. Higher willingness to pay offsets 80% of higher prices for consumers, and higher wages compensate workers for 60% of the cost of mandated investment in occupation-specific human capital. Welfare effects appear more favourable in occupations in which licensing is more common.

Suggested Citation

  • Morris M Kleiner & Evan J Soltas, 2023. "A Welfare Analysis of Occupational Licensing in U.S. States," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(5), pages 2481-2516.
    • Handle: RePEc:oup:restud:v:90:y:2023:i:5:p:2481-2516.
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    File URL: http://hdl.handle.net/10.1093/restud/rdad015
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    Citations

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    Cited by:

    1. Christa Deneault & Evan Riehl, 2025. "Should States Reduce Teacher Licensing Requirements? Evidence from the Rise of For-Profit Training Programs in Texas," NBER Working Papers 34232, National Bureau of Economic Research, Inc.
    2. Andres Marroquin & Edward J. Timmons, 2024. "Economic values, support of labor unions, and salience of occupational licensing in the European Union," Economics Bulletin, AccessEcon, vol. 44(4), pages 1338-1347.
    3. Daniel A. Gyimah & James W. Saunoris, 2025. "Exploring the nexus of occupational licensing and the shadow economy: Evidence from U.S. states," Contemporary Economic Policy, Western Economic Association International, vol. 43(2), pages 271-291, April.
    4. Veronika Lukesch & Thomas Zwick, 2024. "Do outside options drive wage inequalities in retained jobs? Evidence from a natural experiment," British Journal of Industrial Relations, London School of Economics, vol. 62(1), pages 127-153, March.
    5. Busso, Matías & Montaño, Sebastián & Muñoz-Morales, Juan S., 2023. "Signaling Specific Skills and the Labor Market of College Graduates," IDB Publications (Working Papers) 12720, Inter-American Development Bank.
    6. Chiara Farronato & Georgios Zervas, 2026. "Consumer Reviews and Regulation: Evidence from New York City Restaurants," Marketing Science, INFORMS, vol. 45(4), pages 752-772, July.
    7. Morris M. Kleiner & Wenchen Wang, 2026. "The Labor Market Effects of Occupational Licensing in the Public Sector," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 65(2), pages 200-229, April.
    8. Ilya Kukaev & Edward J. Timmons, 2026. "Is occupational licensing a barrier to self-employment?," Journal of Regulatory Economics, Springer, vol. 69(1), pages 1-32, December.
    9. Ilya Kukaev & Edward J. Timmons, 2024. "Certifiably employable? Occupational regulation and unemployment duration," Southern Economic Journal, John Wiley & Sons, vol. 90(4), pages 1035-1059, April.
    10. Alicia Plemmons & Darwyyn Deyo & Walker Rhine, 2026. "The industry costs and benefits of occupational licensing: measuring differences in establishment behavior and quality," Journal of Regulatory Economics, Springer, vol. 69(1), pages 1-25, December.
    11. Yun taek Oh & Morris M. Kleiner, 2025. "The Influence of Occupational Licensing on Workforce Transitions to Retirement," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 64(4), pages 643-659, October.
    12. Anthony Le & Parth Shah, 2026. "Occupation-Specific Education Requirements and Occupational Silos: Evidence from CPA Licensing Rules," Working Papers 2026-16, Becker Friedman Institute for Research In Economics.
    13. Brüll, Eduard & Rostam-Afschar, Davud & Schlenker, Oliver, 2025. "Cut off from new competition: Threat of entry and quality of primary care," Labour Economics, Elsevier, vol. 92(C).
    14. Dean, James & Geloso, Vincent, 2024. "Poverty spells and economic freedom: Canadian evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 224(C), pages 282-296.
    15. Matthew P West, 2026. "Licensing requirements and health inspection outcomes in nail salons and barbershops," Economic Affairs, Wiley Blackwell, vol. 46(2), pages 285-312, June.
    16. Umair Ali & Chris M. Herbst & Christos A. Makridis, 2024. "Minimum quality regulations and the demand for childcare labor," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 43(3), pages 660-695, June.

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