Occupational Licensing Effects on Firm Entry and Employment

Abstract

Occupational licensing is the mechanism in which a government body imposes minimum requirements to work within a specific job classification. These requirements often include some combination of education credits, experience hours, mandatory fees, and examinations. The costs to firms of paying to license employees can be a substantial consideration when they are making location and hiring decisions since the licensure requirements are often determined at the state level. Using firm-level data, I analyze how these occupational licensing expenses affect firms by determining how differences in those expenses across state borders affect the likelihood of firms locating on a particular side of a border. I find that firms are less likely to locate in an expensive state if a substantially cheaper state is a short distance away. I also utilize a geographic regression discontinuity design and find that the more expensive side of a state border has approximately 2.3 fewer employees on average.