People overseas who are considering moving to New Zealand are advised by our immigration authorities to check if they need occupational registration for their jobs.
They are told they have to be registered with a specific organisation to work in some jobs (many jobs, actually), and they must get their registration before they can apply for a visa to work in one of those jobs.
For example, a nurse must get registration from the Nursing Council of New Zealand.
But are New Zealanders better off as a result of licensing systems and registrations?
As an article in Reason magazine pointed out in 2022, we are told the main point of occupational licensing is to protect the public from incompetent and crooked practitioners in various trades and professions.
That licensing more often protects the licensed from competition and jacks up prices in the process has been revealed by many researchers (and even defended by a few advocates of intrusive regulation). But evidence continues to grow from multiple sources that occupational licensing acts as a barrier to entry for the most vulnerable people without offering much in the way of benefit to the public.
A study published in 2023 by the Federal Reserve Bank of Minneapolis found that nearly one in every four workers In the United States is licensed – but that rate is not constant across groups, and workers of colour are substantially less likely to be licensed relative to White, non-Latino/a workers.
Authors Tyler Boesch, Katherine Lim, and Ryan Nunn pointed out that not only do licenses act as a ticket to ride in a range of occupations that has grown in recent decades from 5 percent of the workforce to roughly one-quarter, but “workers who secure a license tend to receive higher wages than similar unlicensed workers and may also enjoy more job security.”
The findings of an Institute of Justice report suggest licensing policy is typically driven by special interests, not the public interest.
“Overwhelmingly, demands come from motivated parties, who may put professional status or economic gain ahead of sound policy, and, in fact, independent government reviews most often conclude these demands are wrongheaded.”
How can occupational licensing be made less damaging and more sensible? Sometimes, the best answers are the simple ones, Reason magazine suggested.
Boesch, Lim, and Nunn of the Minneapolis Fed proposed the removal of licensing requirements that are not needed to protect public safety.
Failing that, they suggest that “experience and training acquired abroad could be more fully recognized,” since that’s a major hurdle for immigrants whose credentials are frequently discounted by licensing authorities.
The Reason report concluded:
Fundamentally, occupational licensing offers little in the way of benefit, unless you’re a big fan of limiting competition to existing practitioners and raising barriers for would-be entrepreneurs. Given that the negative effects of licensing fall most harshly on low-income people and racial and ethnic minorities, the case for maintaining these restrictions becomes ever sketchier.
PoO harked back to the Reason article on learning of a new study into occupational licensing – or rather, into the effect of occupational licensing on income inequality.
Several explanations have been proposed for the increase in income inequality in recent years, including changes in the relative demand for skills, the weakening of trade unions, reductions in the real value of the minimum wage, changes in progressive taxation, and alternative employment arrangements such as performance-based pay and independent contracting.
But little attention has been paid to the effects of occupational licensing, which restricts entry into many professions.
A Cato Institute research brief says occupational licensing emerged during the 20th century as one of the most important labour market institutions.
In the early 1900s, occupational licensing laws in the United States primarily targeted high-skilled professionals, such as physicians and dentists. By the 1950s, however, these laws expanded to include lower-wage service providers, including nurses, real estate agents, electricians, and cosmetologists.
Since the 1960s, licensing has also grown to encompass many health care practitioners. Consequently, in 2022, 21.7 percent of employed workers in the United States were licensed, which was about twice the rate of union membership and more than 15 times the rate of workers earning the federal minimum wage.
The Cato Institute brief is based on a paper by Kihwan Bae et al., “Analyzing the Effects of Occupational Licensing on Earnings Inequality in the United States,” National Bureau of Economic Research Working Paper no. 33732, May 2025.
It says occupational licensing may increase the earnings of licensed practitioners by limiting entry into licensed occupations, potentially increasing the earnings gap between licensed and unlicensed workers. This earnings inequality may also increase because occupational licensing excludes prospective workers who do not meet certain quality standards.
Alternatively, occupational licensing may signal to consumers that licensed workers are qualified in their fields, which could reduce the earnings inequality between groups, such as gender and racial wage gaps.
The research examines the effect of occupational licensing on labour earnings inequality in the United States from 1983 to 2019.
The research team used wage and salary data from the Current Population Survey’s Outgoing Rotation Group to analyze trends in the effects of occupational licensing on earnings for workers in 22 licensed occupations (referred to as “licensed workers”) relative to workers in all other occupations (referred to as “unlicensed workers”).
They define this effect as the licensing premium, which represents the average percentage difference in earnings between licensed workers and unlicensed workers with similar demographics, educational attainment, and union membership.
Given their data sources, they focused on whether each occupation was subject to a licensing statute rather than on whether workers in their data held a license.
The research finds that the licensing premium increased modestly between 1983 and 2019—that is, rigid licensing entry barriers have limited market pressure to mitigate additional earnings toward licensed workers over the past four decades.
This finding suggests that earnings inequality between licensed and unlicensed workers grew during this time.
The primary driver behind these changes was an increasing licensing premium among workers in high-paying occupations rather than among workers in middle- or low-income occupations. As a result, earnings inequality increased more among licensed workers than it did among all workers.
Similarly, the earnings gap between higher-paying licensed and unlicensed workers grew more than the gap between lower-paying licensed and unlicensed workers.
The research furthermore reveals a larger licensing premium for female workers, younger workers (aged 16–24), older workers (aged 55–64), racial and ethnic minorities, and those without a college education.
However, the licensing premium for female workers and those without any college education decreased relative to their male counterparts and college graduates. These decreases occurred partly because females and those without any college education are overrepresented in lower-skilled licensed occupations.
Overall, the findings suggest that occupational licensing increased earnings inequality in the United States between 1983 and 2019.
Bob Edlin is a veteran journalist and editor for the Point of Order blog HERE. - where this article was sourced.
For example, a nurse must get registration from the Nursing Council of New Zealand.
But are New Zealanders better off as a result of licensing systems and registrations?
As an article in Reason magazine pointed out in 2022, we are told the main point of occupational licensing is to protect the public from incompetent and crooked practitioners in various trades and professions.
That licensing more often protects the licensed from competition and jacks up prices in the process has been revealed by many researchers (and even defended by a few advocates of intrusive regulation). But evidence continues to grow from multiple sources that occupational licensing acts as a barrier to entry for the most vulnerable people without offering much in the way of benefit to the public.
A study published in 2023 by the Federal Reserve Bank of Minneapolis found that nearly one in every four workers In the United States is licensed – but that rate is not constant across groups, and workers of colour are substantially less likely to be licensed relative to White, non-Latino/a workers.
Authors Tyler Boesch, Katherine Lim, and Ryan Nunn pointed out that not only do licenses act as a ticket to ride in a range of occupations that has grown in recent decades from 5 percent of the workforce to roughly one-quarter, but “workers who secure a license tend to receive higher wages than similar unlicensed workers and may also enjoy more job security.”
The findings of an Institute of Justice report suggest licensing policy is typically driven by special interests, not the public interest.
“Overwhelmingly, demands come from motivated parties, who may put professional status or economic gain ahead of sound policy, and, in fact, independent government reviews most often conclude these demands are wrongheaded.”
How can occupational licensing be made less damaging and more sensible? Sometimes, the best answers are the simple ones, Reason magazine suggested.
Boesch, Lim, and Nunn of the Minneapolis Fed proposed the removal of licensing requirements that are not needed to protect public safety.
Failing that, they suggest that “experience and training acquired abroad could be more fully recognized,” since that’s a major hurdle for immigrants whose credentials are frequently discounted by licensing authorities.
The Reason report concluded:
Fundamentally, occupational licensing offers little in the way of benefit, unless you’re a big fan of limiting competition to existing practitioners and raising barriers for would-be entrepreneurs. Given that the negative effects of licensing fall most harshly on low-income people and racial and ethnic minorities, the case for maintaining these restrictions becomes ever sketchier.
PoO harked back to the Reason article on learning of a new study into occupational licensing – or rather, into the effect of occupational licensing on income inequality.
Several explanations have been proposed for the increase in income inequality in recent years, including changes in the relative demand for skills, the weakening of trade unions, reductions in the real value of the minimum wage, changes in progressive taxation, and alternative employment arrangements such as performance-based pay and independent contracting.
But little attention has been paid to the effects of occupational licensing, which restricts entry into many professions.
A Cato Institute research brief says occupational licensing emerged during the 20th century as one of the most important labour market institutions.
In the early 1900s, occupational licensing laws in the United States primarily targeted high-skilled professionals, such as physicians and dentists. By the 1950s, however, these laws expanded to include lower-wage service providers, including nurses, real estate agents, electricians, and cosmetologists.
Since the 1960s, licensing has also grown to encompass many health care practitioners. Consequently, in 2022, 21.7 percent of employed workers in the United States were licensed, which was about twice the rate of union membership and more than 15 times the rate of workers earning the federal minimum wage.
The Cato Institute brief is based on a paper by Kihwan Bae et al., “Analyzing the Effects of Occupational Licensing on Earnings Inequality in the United States,” National Bureau of Economic Research Working Paper no. 33732, May 2025.
It says occupational licensing may increase the earnings of licensed practitioners by limiting entry into licensed occupations, potentially increasing the earnings gap between licensed and unlicensed workers. This earnings inequality may also increase because occupational licensing excludes prospective workers who do not meet certain quality standards.
Alternatively, occupational licensing may signal to consumers that licensed workers are qualified in their fields, which could reduce the earnings inequality between groups, such as gender and racial wage gaps.
The research examines the effect of occupational licensing on labour earnings inequality in the United States from 1983 to 2019.
The research team used wage and salary data from the Current Population Survey’s Outgoing Rotation Group to analyze trends in the effects of occupational licensing on earnings for workers in 22 licensed occupations (referred to as “licensed workers”) relative to workers in all other occupations (referred to as “unlicensed workers”).
They define this effect as the licensing premium, which represents the average percentage difference in earnings between licensed workers and unlicensed workers with similar demographics, educational attainment, and union membership.
Given their data sources, they focused on whether each occupation was subject to a licensing statute rather than on whether workers in their data held a license.
The research finds that the licensing premium increased modestly between 1983 and 2019—that is, rigid licensing entry barriers have limited market pressure to mitigate additional earnings toward licensed workers over the past four decades.
This finding suggests that earnings inequality between licensed and unlicensed workers grew during this time.
The primary driver behind these changes was an increasing licensing premium among workers in high-paying occupations rather than among workers in middle- or low-income occupations. As a result, earnings inequality increased more among licensed workers than it did among all workers.
Similarly, the earnings gap between higher-paying licensed and unlicensed workers grew more than the gap between lower-paying licensed and unlicensed workers.
The research furthermore reveals a larger licensing premium for female workers, younger workers (aged 16–24), older workers (aged 55–64), racial and ethnic minorities, and those without a college education.
However, the licensing premium for female workers and those without any college education decreased relative to their male counterparts and college graduates. These decreases occurred partly because females and those without any college education are overrepresented in lower-skilled licensed occupations.
Overall, the findings suggest that occupational licensing increased earnings inequality in the United States between 1983 and 2019.
Bob Edlin is a veteran journalist and editor for the Point of Order blog HERE. - where this article was sourced.
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