Occupational licensing, which requires workers in various professions to obtain state-issued credentials, impacts about a quarter of the U.S. workforce. A recent study co-authored by Wenchen Wang, Industry Assistant Professor of Business Economics at Illinois Institute of Technology’s Stuart School of Business, examines how these requirements affect wages and job stability across public and private sectors.
The research paper, titled “The Labor Market Effects of Occupational Licensing in the Public Sector” and published in Industrial Relations: A Journal of Economy and Society, analyzes 442 occupations nationwide. It is noted as the first study to directly compare the effects of licensing on labor markets between public and private sector jobs.
“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.”
According to the findings, licensed workers in the private sector experience nearly a 9 percent increase in pay—particularly among higher-income professionals—compared to about a 6 percent increase for their counterparts in government roles. However, licensing appears to reduce part-time work more significantly within public sector jobs. This reduction may help protect positions and provide professional recognition for government employees.
“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. She notes that such barriers may discourage people from entering certain fields or limit career flexibility since requirements differ by state. The increased pay linked with licensure in private industries could also contribute to economic inequality if only wealthier individuals can afford these hurdles.
“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.”
Wang also highlights challenges occupational licensing poses for employers: “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.” In contrast, government agencies may struggle to attract skilled professionals due to lower wage increases compared with businesses.
“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. She suggests that harmonizing standards across states—and ensuring requirements serve genuine safety or quality needs rather than acting as entry barriers—could improve labor mobility and equity throughout both sectors.