Occupational licensing's effects on firm location and employment in the United States

Abstract

AbstractOccupational licensing is the policy in which a government body imposes minimum requirements to work within a specific job classification. These requirements include some combination of education credits, hours of experience mandatory fees and examinations. The costs to firms of paying to license employees or hire licensed employees can be a substantial consideration when they are making location and hiring decisions because the licensure requirements are often determined at the state level. Using firm‐level data, I analyse how these occupational licensing expenses affect firms by determining how differences in those expenses across state borders in the United States affect the likelihood that a firm will locate in an expensive state if a substantially cheaper state is a short distance away. As the monetary cost of fees and the time investment of experience and education for each worker increases, firms are less likely to locate in high‐cost states. I also use a geographic regression discontinuity design and find that the more expensive side of a state border has 2.3 fewer employees on average.