The licensing and certification roles of the CPA license in the gig economy

Abstract

U.S. employers, including the Big Four accounting firms, are increasingly using gig economy platforms to hire accounting labor. One factor that employers may consider when hiring accountants in the gig economy is the CPA license. The CPA license has two potential roles: 1) a licensing role, which enables the license holder to perform exclusive jobs; and 2) a certification role, which signals that the license holder is a high-quality accountant. Although prior research finds that CPAs earn a wage premium in the traditional economy, it is unclear whether this relationship will hold in the gig economy. CPA-privileged jobs may not be available in the gig economy, thereby diminishing the importance of the licensing role. Furthermore, unlike the traditional economy, the gig economy has sophisticated reputational feedback systems that provide detailed information about a worker's prior job performance, which could substitute to some extent for the CPA license as a signal of accountant quality. Using a novel dataset, I find that CPAs earn a wage premium in the gig economy when they and their non-CPA counterparts have no reputational feedback. However, the CPA wage premium diminishes in the presence of reputational feedback and disappears in the presence of negative reputational feedback, indicating that reputation can substitute to some extent for the CPA license as a signal of accountant quality. These results have significant implications for accountants, institutions that issue credentials, and academic research related to licensing, certification, and signaling.