If you have the right skills to do the job, that’s great.
But for many professions, that’s not nearly enough. You’ll also need a license before you can start working. For a lot of industries, that one piece of paper is what separates an actual professional from someone who is willing to offer a service.
Now, who do you think is more likely to get hired?
A person licensed by the government or someone who could have learned everything they know on YouTube?
But licensing does more than just keep the YouTube experts out. It has an impact on how entire industries work and, in some cases, licensing raises standards and builds trust. Of course, there are also critics who say that licensing is too limiting and it’s an excuse for professionals to hike up their prices.
From an economics standpoint, licensing is very interesting because it’s right there between regulation and the labor market.
So let’s look at how governments use these systems and how they affect the job market.
Why So Many Professionals Need a License
Licensing probably doesn’t even cross your mind until you find yourself needing it.
You’re excited to start your own business, switch careers, or what have you, and then it’s like you get a glass of cold water right in the face – you need a license for it. It feels like red tape at first, but there’s actually a very valid (and very simple) reason licensing exists: to protect people.
Some jobs are risky and, if they’re not done right, they can cause serious damage.
Imagine a financial advisor making a mistake or a house being poorly wired. The consequences of these situations are life-changing and not for the better. So in order to avoid as many incidents as possible, governments stepped in with licensing requirements.
And it makes perfect sense because how can you offer and charge for a service that you don’t have a basic level of training and knowledge for?
Over time, this process has created clearer pathways into many careers.
You can’t just enter a field randomly; instead, you follow a sequence of steps. Education comes first, followed by practical experience, testing, and ending in certification.
This way, even newbies know exactly how to enter a profession, and it helps industries keep their standards somewhat consistent.
You can see how this works in practice, too.
A financial advisor in New York has to pass exams before they can legally work. A real estate agent in Texas has to complete coursework and licensing tests before they’re allowed to represent buyers and sellers.
A contractor in Oregon has to go through an Oregon contractor license exam test prep. Namely, they have to prepare well for the licensing exam so that they pass on the first go, all that before they get their license and start working (legally).
Of course, none of this can totally eliminate bad actors and guarantee that everyone will do their job well just because they have a license.
But it does help set expectations about who is qualified to work, and it gives the government a way to step in if those standards aren’t met.
Licensing and the Job Market
The steps you need to take before you can get licensed have a big impact on labor supply.
For example, if becoming licensed takes years, it means there will most likely be fewer people who will choose that specific career path. At the same time, being licensed makes you seem more stable and respected, which is why people are willing to take the effort in the first place.
So what do you get from this? A system that impacts the entire job market.
Why Training Requirements Are Important
Most licensed professionals have to go through training before they’re allowed to work on their own. The goal of this is to make sure that professionals know the ins and outs of the job before they start working with clients.
And when everyone in the field goes through pretty much the same training, the general skill level of that profession becomes higher.
Licensing as a Barrier to Entry
Licensing can improve professional standards, no argument about that. But it can also make it more complicated for new professionals to start working quickly because it takes time to complete the training, plus it costs money.
And that’s simply too much for some.
Economists describe this as a barrier to entry because the fewer people that qualify, the smaller the number of professionals that field has.
Licensing Rules/Regulations Are Different Based on the State You Live In
The rules around how you can get a licence and what’s considered ‘legal’ might be one thing in Texas, and a completely different thing in Florida.
And this, as you can imagine, isn’t ideal. It would be much better if the regulations were the same across the entirety of the United States.
This has to do with the fact that people live near state borders, and they move around the country. So if you’re, let’s say, a licensed electrician in California, and you move to Alaska, you might be required to renew your licence, or apply for a new one.
The result of this?
Worker mobility is slower, so some regions experience shortages.
Conclusion
Talking about licensing mightn’t be the MOST exciting thing in the world, but it has its charm. If you’re a blue-collar worker or a contractor, then you come across this type of talk every year, or at least every other year. So it’s not like you don’t think about it.
And yeah, if you’re into the economy, then this article is a slam dunk.
Some people are under the impression that licences are forced upon workers just so that the government can get its cut. But that’s not really the case here.
They already get their cut through taxes.
The reason why you have a licensing exam (that you’re required to pass) is purely that if there weren’t one, there would be chaos. People would work under what they consider ‘safe’, and they would do jobs they think are ‘correct’. Imagine an apartment building built by a bunch of people with this type of mentality. Would you purchase one of these apartments and move your family there? Or would you be afraid the entire thing would collapse, in some shape or form?
Yeah, licensing is here to stay. And it’s here to stay for a good reason. And that reason is order (opposed to chaos).
Peyman Khosravani is a global blockchain and digital transformation expert with a passion for marketing, futuristic ideas, analytics insights, startup businesses, and effective communications. He has extensive experience in blockchain and DeFi projects and is committed to using technology to bring justice and fairness to society and promote freedom. Peyman has worked with international organizations to improve digital transformation strategies and data-gathering strategies that help identify customer touchpoints and sources of data that tell the story of what is happening. With his expertise in blockchain, digital transformation, marketing, analytics insights, startup businesses, and effective communications, Peyman is dedicated to helping businesses succeed in the digital age. He believes that technology can be used as a tool for positive change in the world.
