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Entry barriers and business dynamism: Evidence from occupational licensing reforms

Author

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  • Bredtmann, Julia
  • Otten, Sebastian
  • Rammert, Timo

Abstract

We examine how occupational licensing shapes entrepreneurship in Germany's crafts sector. We exploit two sequential reforms that shifted entry barriers across occupations: a 2004 deregulation that relaxed licensing requirements and a 2020 partial re-regulation that reinstated them for a subset of crafts. Using administrative universe data at the occupation-year level and event-study difference-in-differences designs, we find that the 2004 deregulation led to a large and persistent increase in firm entry, a lagged rise in firm exits, and an expansion in the stock of firms. At the same time, completed master examinations declined markedly. The 2020 re-regulation reverses these patterns: master examinations increase, while firm entry, firm exit, and the stock of firms fall relative to occupations that remained deregulated. Overall, stricter entry requirements raise investment in formal credentials, yet reduce entrepreneurial turnover and market dynamism.

Suggested Citation

  • Bredtmann, Julia & Otten, Sebastian & Rammert, Timo, 2025. "Entry barriers and business dynamism: Evidence from occupational licensing reforms," Ruhr Economic Papers 1193, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:335898
    DOI: 10.4419/96973378
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    Keywords

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    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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