New Study Finds That Universal Recognition Of Occupational Licenses Increases Employment And Mobility

More than 20% of U.S. workers need a government-approved occupational license to do their job. Obtaining a license often requires hundreds of hours of classes and hundreds of dollars in fees. And until recently, a license earned in one state was rarely recognized in another, meaning workers had to go through the entire process again if they moved across state lines. But since 2013, 18 states have adopted universal recognition of licenses, and a new study finds it improves license portability and increase employment.

Universal recognition laws allow individuals with an occupational license issued by one state to work in another state without going through the entire licensing process again. So, a plumber with an Indiana license who moves to Iowa can immediately start working because Iowa has universal recognition.

Universal recognition seems like an easy decision. After all, all 50 states universally recognize other states’ driver’s licenses. Yet only 18 states currently have universal recognition when it comes to occupational licensing, as shown in the map below. Most of the states are in the mountain and plains regions of the country (green states).

The map above disguises some differences among universal recognition policies. Ten of the 18 states require licenses issued by other states to have “substantially equivalent” requirements to be recognized. Such language may limit the effectiveness of universal recognition since it requires workers from states with dissimilar requirements to bear the costs of attaining a new license. Eight states, including Arizona, Utah, and Iowa, do not have such a requirement.

Five states require applicants for recognition of a license to establish residency first. This may limit the benefits of universal recognition policies by preventing workers who live near
near
state borders from working on temporary projects across state lines.

In the new study, authors Edward Timmons and Kihwan Bae of West Virginia University’s Knee Center for the Study of Occupational Regulation compare the labor market outcomes of licensed workers in universal recognition states to those of similar workers in states without universal recognition. There are 21 licensed occupations in the analysis, including cosmetologist/barber, electrician, dental hygienist, chiropractor, and architect.

Despite the limitations of some of the universal recognition policies discussed above, the authors find positive labor market effects. After adoption of universal recognition, the employment ratio among licensed individuals increased by nearly a full percentage point. This effect was driven by more people entering the workforce and by a decline in unemployment among those already participating in the labor market.

They also find that migration into states with universal recognition increased by 0.77 percentage points. This is evidence that universal recognition lowers the costs of moving by allowing individuals to maintain their careers without the substantial time and money costs of getting a completely new license. Wider adoption of universal recognition could improve geographic mobility, which has been declining for decades.

Occupational licensing is a significant barrier to work and harms consumers by raising prices and limiting choice. According to recent estimates, licensing lowers employment by nearly 2 million jobs and costs the economy $184 billion annually in lost output. There is also evidence that licensing prevents people from moving up the income ladder and exacerbates income inequality. Universal recognition will not solve all these problems, but this new study shows it helps. More states should adopt it.