The potential benefit of having the government require that certain jobs require an official license is quality control and protection. Personally, I rather like knowing that my nurse or doctor or dentist has gone through courses and training. The potential cost is that requirement to have a government license can become a way for those who have a job to limit the number of people who can do that job, and thus to push up their own wages, rather than offering benefits to consumers. What economists call a “Baptists-and-bootleggers” coalition can form (for more background, see here and here). The Baptists and the bootleggers both supported legal limitations on alcohol: the Baptists for moral concerns, and the bootleggers because legal limits made their business more profitable. In every job, there is inevitably going to be an example or two where a customer is treated in a way that is personally harmful or financially costly or both. A coalition will form where one set of participants wants occupational regulation to reduce the risk of these harms, while existing workers in the field will favor occupational regulation to limit the competition they face.
For an overview of the economics (and thus the tradeoffs) of occupational licensing, a useful starting point is the essay by Janna E. Johnson in the Winter 2026 issue of the Journal of Economic Perspectives, “Occupational Licensing in the United States.” For an essay about competition in the market for physician care–a case where some regulation seems justified to me, but the regulation has also been used to limit supply–a useful starting point is Joshua D. Gottlieb and Sean Nicholson, “Physician Competition: Entry and Substitution,” in the Spring 2026 issue of the Journal of Economic Perspectives. As they point out:
From 1980 to 2025, the US population grew by 50 percent (World Bank 2025). The population above age 64 grew by 140 percent, while that above age 80 nearly tripled; these groups use a disproportionate share of health care and might thus be a better proxy for demand than total population. Over the same 1980–2025 period, the number of first-year positions in traditional US medical schools that award the Doctor of Medicine (MD) degree increased by only 34 percent. This smaller increase is unlikely to reflect a lack of students interested in becoming doctors; in 2025, there were 2.3 times as many applicants to US MD programs as available positions. This ratio has exceeded 2 every year since 2003. The relatively small flow of entering physicians shows up in the stock: the United States has 2.7 practicing physicians per 1,000 population versus an average of 3.8 for OECD countries. The average annual growth rate of physicians per capita in the United States between 2000 and 2022 (0.8 percent) is about one-half of the average growth rate for OECD countries as a whole (1.5 percent).
These patterns are consistent with the belief that regulation of physicians including specialists) isn’t just about assuring quality, but is also about restricting supply to keep the pay of physicians high. (In the shade of these parentheses, I will add that I have worked as Managing Editor of the JEP for 40 years now, and so am perhaps psychologically addicted to the belief that the articles are of interest.)
Jonathan Hartley and Morris Kleiner provide some US and international perspective in “Analyzing Occupational Licensing Across Nations” (Federal Reserve Bank of Minneapolis, Staff Report 685, July 7, 2026). They present a familiar figure of the rise of occupational licensing in the US economy over time.
The rules and limits and tradeoffs of occupational licensing affect a much larger share of the US workforce than labor union membership; after all, only about 10% of total US workers belong to a labor union–and only about 7% of private-sector workers do so.
The new contribution of Hartley and Kleiner is to collect international data on occupational licensing from a wide array of sources. (The colors of the bars in this figure refer to geography: western Europe, Latin America, Africa, and so on.) The level of variation here is interesting: for example, the US has considerably more occupational licensing than Sweden, France, Italy, or the UK, but less than Japan or Germany. Because the sources of this data come from a wide array of surveys in different countries, I’m hesitant to overinterpret some of the comparisons with countries like Nigeria or India, where a large share of the workforce is in the “informal,” untaxed and unregulated economy. But at a minimum, there isn’t a clear pattern where higher-income countries are more likely to have high levels of occupational licensing.
The case for occupational regulation is often a pretty simple one: something bad happened to someone, somewhere, and a regulation might have prevented it from happening. The costs that make it harder for workers to enter certain jobs and preserve higher wages for those already in those jobs, leading to higher costs for consumers, are less clear. Some forms of occupational licensing surely make sense, but the potential tradeoffs are also real.
