Over the past few years, there’s been something of a research backlash against occupational licenses, such as those earned by people working in hair or nail salons, plumbers, dental assistants and the like. Critics contend that occupational licenses create barriers to entry, and make it harder for low income people and younger workers to enter these professional fields. Armed with this data, the Trump Administration is gearing up to reform how states manage occupational licensing. Somewhat surprisingly, this effort is quite similar to strategies proposed under the Obama Administration back in 2015. However, a recent research paper suggests some caution in this area as it finds that occupational licensing may reduce income gaps and boost the incomes of lower income and minority workers. Licenses help (or hurt) because they serve as market signals, providing evidence of key skills and knowledge. This signaling may be especially important for low skill or low income workers, who often lack other credentials or means to signal work readiness.
This debate is important beyond the halls of academia. Occupational licensing is big business, as ¼ of all US jobs require some kind of occupational license. Licensing and credentials have also become a core activity of our workforce development system. Indeed, they are one of the best means to help people build skills and enter onto promising career pathways. While we can all cite silly licensing efforts, we must also recognize that these licenses and credentials help people enter and prosper in the workforce. Given the mixed level of evidence in the field, we should be very cautious as reform efforts move ahead.