Is professional licensing a racket? Freakonomics explores the cost of entry with USF professor of economics

By Georgia Jackson, College of Arts and Sciences

Is professional licensing a racket?

According to Rebecca Allensworth, a professor at Vanderbilt University, the answer
is “yes.”

In a recent episode of the popular podcast Freakonomics Radio, Allensworth argues that licensing boards help too many bad actors stay in their
professions — including everything from medicine and law to hairdressing and interior
design — while keeping too many good ones out.

“Professional licensing is too onerous for certain professions, and it just makes
the barriers too high,” Allensworth tells podcast host Stephen Dubner. “It keeps people
out and the investment in what you’re getting for that regulation is not worth it.”

To support Allensworth’s case, Dubner cites research by Bobby Chung, an assistant professor of economics at the University of South Florida, who found
that licensing reduces the labor supply in a given profession by 17 to 27 percent.

“The appropriate level of licensing depends on the balance between public protection
and economic efficiency,” said Chung, who was glad to see the topic receive attention
from the podcast. “Licensing is crucial for high-risk professions, such as surgeons
or structural engineers, where errors can have life-threatening or catastrophic consequences.
However, excessive licensing can create unnecessary barriers to entry, limiting workforce
mobility and driving up costs without clear benefits to consumers.

“Regulations become overly restrictive when they impose burdens unrelated to competency
— such as state residency requirements that force already-qualified professionals
to repeat the licensing process. A well-designed system should ensure public safety
while minimizing unnecessary obstacles to workforce participation.”

Chung’s research, which was published by the British Journal of Industrial Relations,
makes several contributions to the existing literature on the effect of professional
licensing on employment by comparing employment in professions across state lines,
where the profession is licensed in one state but unlicensed in the other.

“Although professional licensing restricts labor supply, regulatory bodies play a
crucial role in ensuring public welfare,” Chung said. “Licensing helps maintain industry
standards by setting minimum qualifications, thereby reducing the risk of harm from
unqualified practitioners. These boards not only establish competency requirements
but also oversee ethical and professional conduct. Through complaint investigations
and disciplinary actions, they reinforce accountability, deter malpractice and enhance
consumer trust. While the impact on labor markets is significant, the primary justification
remains safeguarding public health, safety and service quality.”

Chung’s ongoing research on occupational licensing has led him to examine the impact
of edTPA, a widely adopted teacher performance assessment system. He is also exploring
how occupational licensing may have exacerbated inequality during COVID-19.  

“Unlicensed workers were more vulnerable to layoffs, and unemployment can have lasting
negative effects on career trajectories and earnings,” Chung said. “This research
sheds light on how licensing requirements influence workforce resilience during economic
downturns and their longer-term implications for labor market inequality.”

Listen to the full episode on Freakonomics Radio.