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From accountants to nurses to realtors, hundreds of occupations are regulated by states and require a state license to work in the profession. Such requirements are widespread, covering an estimated one quarter of all workers nationwide.

As a result, occupational licensing has a significant impact on wages and employment in the United States, says Industry Assistant Professor of Business Economics Wenchen Wang at �㽶��ý’s Stuart School of Business. The impact is especially felt in the public sector, where the percentage of licensed workers is about double the percentage in the private sector workforce.

Wang is the co-author of “The Labor Market Effects of Occupational Licensing in the Public Sector,” which was recently published in . In an analysis covering 442 occupations in the U.S., the research paper is the first to compare the effects of licensing on labor markets in the public and private sectors. It reveals important insights for workers and managers who are affected by occupational licensing, as well as for state legislators and policymakers who oversee the licensing regulations.

Higher Wages, More Job Stability

“We find that licensing is associated with higher wages and more stable, full-time employment in both sectors,” Wang says, “but private-sector employees seem to capture more of the financial benefits, while public-sector workers gain more job stability.”

The findings show that private-sector workers enjoy a nearly 9 percent bump in pay due to licensing, particularly among higher-income professionals, while the wage increase is only about 6 percent in the public sector. However, licensing reduces part-time work more strongly in the public sector, which may help protect jobs and provide professional recognition for government employees.

Opportunities and Trade-Offs for Workers

“A license can open doors to more stable and well-paid positions, but obtaining one often requires time and money for education, exams, or fees,” Wang says. These types of barriers can discourage people from entering the field and can limit career flexibility and mobility, especially because licensing regulations can vary from state to state. In addition, she notes that the higher pay that a license brings in the private sector can reinforce economic inequality if only higher-income workers can afford to meet licensing requirements.

“For workers who are starting out or changing careers,” Wang advises, “it is worth carefully weighing whether a license meaningfully improves employment prospects in your chosen field and whether your state’s licensing requirements are proportionate to the benefits.”

Challenges for Management and Policymakers

For both businesses and government agencies, the dynamics of occupational licensing can make staffing and hiring more challenging.

“In the private sector, licensing can help signal worker quality and reduce turnover, but excessive licensing can limit flexibility in hiring and make it harder for managers to fill open roles,” says Wang.

In the public sector, where pay scales are often flatter and lag behind businesses at the upper end of the scale, the lower pay bump for licensed workers may make it harder to attract and retain skilled professionals in public service when competing with private sector employers.

“Since licensing affects public employees at nearly twice the rate as private-sector employees, reforms in licensing policy directly influence government workforce quality and costs,” Wang says, so the research findings are relevant to state legislators and policymakers when they consider regulation of occupational licensing.

“Policies that harmonize licensing requirements across states and ensure that requirements are justified by clear public safety or quality needs, rather than serving as barriers to entry, could improve labor mobility and equity across both public and private sectors,” she says.