How occupational licensing laws inhibit interstate mobility

A new National Bureau of Economic Research study by Janna Johnson and Morris Kleiner study finds that state licensing laws massively inhibit geographic mobility (here is an earlier ungated version).

Occupational licensure, one of the most significant labor market regulations in the United States, may restrict the interstate movement of workers. We analyze the interstate migration of 22 licensed occupations. Using an empirical strategy that controls for unobservable characteristics that drive long-distance moves, we find that the between-state migration rate for individuals in occupations with state-specific licensing exam requirements is 36 percent lower relative to members of other occupations. Members of licensed occupations with national licensing exams show no evidence of limited interstate migration. The size of this effect varies across occupations and appears to be tied to the state specificity of licensing requirements. We also provide evidence that the adoption of reciprocity agreements, which lower re-licensure costs, increases the interstate migration rate of lawyers. Based on our results, we estimate that the rise in occupational licensing can explain part of the documented decline in interstate migration and job transitions in the United States.

The new study adds to the already substantial evidence indicating that licensing laws are a major obstacle to geographic mobility, particularly for poor and lower-middle class people seeking to move to areas with greater opportunity. We have gotten to the point where some 30 percent of Americans have to have licenses to legally work in their respective fields, including even some states that license florists and tour guides. The evidence also suggests that most of these laws do far more to suppress competition than protect consumers.

Like the closely related case of zoning restrictions on housing construction, licensing laws are a form of government intervention that harms the general public and the poor, while benefiting politically connected insiders. Both also greatly inhibit mobility and make it very difficult for people in economically depressed regions to move to areas with greater opportunity. Yet another similarity between zoning and licensing is that both have been severely criticized by policy experts across the political spectrum.

Sadly, thanks in part to widespread political ignorance, voters and politicians have largely turned a blind eye to both issues. Hopefully, that will begin to change.