The Origins and Evolution of Occupational Licensing in the United States

Abstract

Despite a dramatic increase in government regulation over the past century, relatively little is known about how new regulatory institutions emerge and evolve over long periods of time. In this paper, we examine the history and political economy of occupational licensing, a major category of labor regulation in the United States. We first develop a theoretical framework in which licensing arises as an endogenous policy choice shaped by potential social welfare considerations and professional association influence. We then evaluate the model’s empirical implications using a new historical database that records the adoption of state and federal licensing requirements for hundreds of occupations from 1870 to 2020. We show, first, that occupations whose tasks plausibly pose greater risks to consumers are more extensively licensed and were regulated earlier, on average, within states. Second, market size is strongly associated with the timing of policy adoption in the early 20th century, while political and institutional characteristics are more influential in later decades. Using an occupation-specific shift-share instrument for immigration-driven supply shocks, we find that an exogenous increase labor market competition raises the likelihood of regulation, consistent with incumbent practitioners’ incentives to restrict entry. Finally, we show that state professional associations substantially increase the probability of regulation immediately after their founding, highlighting the importance of political organization. Together, these findings demonstrate that a combination of public and private interests, as well as broader institutional factors, jointly influenced the adoption and diffusion of occupational licensing and regulation across states.