Occupational Licensing and Occupational Mobility in New England

Occupational licensing—mandatory credentialing that allows a worker to practice a particular profession—varies greatly throughout New England and the United States in terms of which occupations require a license in a given state and the scope of the necessary qualifications. Given a growing share of US workers who are licensed, it is increasingly important to understand how these differences in licensing policy affect markets. Such knowledge can then be used to guide how occupational licensing regulations are structured. The research in this report shows that a labor market implication of licensing policy existence is a 24 percent reduction in occupational mobility, and that effect is driven by licensing qualifications that stipulate fees and minimum thresholds for education and age. These qualifications likely differ in their connection to worker skills, which may help explain mixed findings in research on how licensing affects the safety and quality of goods and services. Policymakers considering occupational licensing to facilitate such product market benefits may also wish to assess labor market costs, such as reduced occupational mobility, using a joint evaluation of those markets to determine the form of licensing regulation, if any, that is most likely to improve societal welfare. More specifically regarding policy recommendations, this report’s findings have multiple implications for future occupational licensing policy in New England. For instance, for occupations in which labor market costs are likely high and product market benefits are likely low, policymakers should consider potentially eliminating licensing altogether and perhaps replacing it with less restrictive forms of regulation such as certification or public inspections. More nuanced assessment is required for occupations in which the labor market costs of licensure are likely low (or high) but the product market benefits of licensure are also likely low (or high). In these cases, policymakers should consider an arrangement of licensing qualifications that better amplifies product market benefits and mitigates labor market costs. Lastly, for occupations in which labor market costs are likely low and product market benefits are likely high, policymakers should consider retaining existing licensing policy or, absent a policy, remain open to establishing licensure or less restrictive policy alternatives if the case for improved consumer protection is sufficiently compelling.