The standard argument for occupational licensing is that it keeps out low-quality providers. Existing evidence, however, does not support this claim; moreover,
licensing erects barriers that can restrict labor supply and worker mobility, with potentially far-reaching implications for wages, employment opportunities, and economic efficiency.
Indeed, new research suggests that
[c]ountries with higher licensing rates tend to have lower output per person, larger informal sectors, and lower scores on multiple dimensions of governance quality, including regulatory quality, rule of law, political stability, and control of corruption.
Licensing is not only a problem in advanced economies. Instead,
it appears to be a widespread labor market institution spanning countries with diverse legal systems, income levels, and regulatory traditions. […] Countries with lower income levels, weaker governance institutions, or larger informal sectors may adopt additional licensing requirements in an effort to improve quality, increase compliance, or formalize economic activity.
The research concludes that
[c]ountries with higher rates of occupational licensing tend to have lower output per person, larger informal sectors, and lower scores on multiple dimensions of governance quality.
Cross-posted from Substack.
