Physicians' Occupational Licensing and the Quantity-Quality Trade-off

Occupational licensing is a widespread quality regulation that potentially increases the quality of labor but reduces its quantity. We provide a theoretical framework to empirically quantify this trade-off in public hospitals, where both clinical quality and physician shortages are critical concerns. Using quasi-exogenous variation driven by a recent and unprecedented migration of physicians to Chile, together with growth in domestic medical schools, we show that more physicians improve patient outcomes, while lower-quality physicians—as measured by licensing exam performance—worsen them. Incorporating these findings into our theoretical framework, we evaluate the implications of locally changing the stringency of the licensing policy.