Trade-Offs of Occupational Licensing : Understanding the Costs and Potential Benefits

Occupational licensing potentially benefits consumers by screening and training workers but at the cost of lower employment. To evaluate this trade-off, I leverage a quasi-experimental setting in which Illinois required compliance training for new and existing real estate agents. Using multiple data sources on official licensee records and housing statistics, I find that the reform caused a one-time spike in agent outflows, a decrease in home sales, and lower worker flows. Whereas the reform affected worker sorting, I do not find a significant reduction in new misconduct incidents. To understand this insignificant effect, I develop a screening model with license training to highlight that licensing may fail to screen and train workers in ethics-related attributes