U.S. State Occupational Licensing: Measuring its Impact on Business Establishments during the Great Recession

Abstract

This paper investigates the relationship between state occupational licensing rules and the number of service-providing business establishments during the Great Recession. Occupational licensing regulations differ across states for many occupations. Economic reasoning suggests that areas with high costs of starting a business would have lower numbers of businesses than areas with lower start-up costs. This study takes the occupational licensing data from the Institute for Justice and uses years 2007-2010 cross-county service-providing establishments from the Bureau of Labor Statistics. Both OLS and two-stage least squares estimates reveal that counties in states with low occupational licensing burdens have greater numbers of business establishments than counties in states with high licensing burdens. Comparing the beginning of the Great Recession to the trough, this paper discovers that counties in states with more licensing rules suffered greater losses in business establishments than counties with less burdensome laws.