The Rise of Occupational Licensing

In the 1950's about 5% of full time U.S. workers had a professional, occupation license. Today about 23% do. 

This data comes the interesting HBR article More and More Jobs Today Require a License. That’s Good for Some Workers, but Not Always for Consumers.

Occupational licensing is the strictest occupational restriction. It prevents the unlicensed from legally working in a profession without meeting government mandated entry requirements.

Certifications, like having a CPA, signals to the market the holder has passed some sort of qualification process. But it doesn't keep those who aren't certified from doing some or all of the same work. For example, our accountant is not a CPA but is more than qualified to do our accounting work.

The main rationales for occupational licensing are to protect the health and safety of consumers and to ensure a sufficiently high level of product or service quality.

It certainly makes sense for many professions to be licensed. Examples include doctors, lawyers, electricians and others where you want to make sure the people providing the service are highly skilled.

But as licensing has grown from about 800 professions in the 1990's to over 1100 hundred today, some seem less in need of stringent control. Examples of professions that can require a license today that didn't 20 years ago include  interior designer, travel guide and auctioneer.

The advantages of licensing to those with licences is obvious. It constrains supply and increases wages. Neither are per se a bad thing.

The drawback is it puts restrictions on who can work in a licensed field and it also results in higher costs for consumers. 

An example is the great hair braiding controversies in Utah, Oregon and Tennessee. It turns out most people don't think unlicensed hair braiders pose a health risk to consumers. 

But as the chart below shows (data from the Institute for Justice Braiding project) many states require a full cosmology license to braid hair. 

There's a broad move to reduce occupational licensing. Many states are reducing their licensing requirements and the Department of Labor recently announced grants for licensing reforms, something the Obama administration also supported.

But while there is pressure to reduce licensing, certification is going up.

With more companies and consumers hiring talent and help online, there is a greater need for sellers to establish they have the required skills. Certifications help do this.

There's long been certification programs in tech. Microsoft, for example, has dozens of them.

We're now seeing them move into many other areas. Expect the growth of certification continue and become even more widespread.

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