Occupational Licensing

Occupational licensing is the requirement to hold a license issued by a regulatory body or professional organization, before practicing a trade, profession or other occupation. Such requirements are commonly defended as a form of consumer protection against the risk of loss from unqualified or incompetent service providers. Economists including Milton Friedman have criticized occupational licensing as a restriction on competition. Some left-wing critics agree, arguing that it serves as a way for members of certain trades to use state power to maintain their class power by restricting entry to the trade and making it difficult, though not impossible, for the poor to enter the professions.

Contrary to the prevailing literature, a 2009 article in the Journal of Law and Economics by economists Marc T. Law and Mindy S. Marks presented evidence that blacks and women were not adversely affected by occupational licensing during the period 1890-1950. In 2012, Law and Marks responded to criticism regarding technical aspects of their research (including their use of census data, ignorance of institutional factors, measurement error, and omitted variables). After adjusting their analysis to address such critiques, they found mostly the same results--suggesting that economists and policy makers' knowledge about the impact of occupational licensing on minorities is still evolving.

Occupational research receives relatively sparse treatment in Labor Economics textbooks compared to other market regulations such as the minimum wage or labor unions. One possible explanation, advocated by libertarian Chicago School economists, is that labor economists favor government regulation. Given the amount of evidence pointing to the inefficiency of occupational licensing, labor economists may choose to avoid its treatment from sympathy for government regulation.