Does occupational licensing costs disproportionately affect the self-employed?

Abstract

PurposeThe purpose of this study is to analyze how occupational licensing costs within a state affect the performance of self-employed firms, as measured through annual sales.Design/methodology/approachThis study utilizes an empirical approach to determine if there are additional effects on the annual sales for firms that are self-employed in high-cost states that are not explained through the individual estimations. Since the choice of self-employment is plausibly nonrandom, this study also uses a propensity score matching method to develop a matched subsample of self-employed and employee-maintaining firms. This selection methodology ensures that the set of self-employed and employee-maintaining firm observations are similar in all measurable attributes besides their regulatory environment and firm structure. Using this representative subsample, the empirical framework is repeated to reevaluate the effects of high occupational licensing fees on the sales of self-employed firms.FindingsIn both the unmatched and matched samples, there are significant, large, negative interactions representing a reduction in annual sales per employee within self-employed firms relative to employee-maintaining firms when located in states with above-average occupational licensing costs. The results using the matched subsamples are noticeably smaller in magnitude, which indicates that future policy assessments would benefit from ensuring that the sample pool, when dealing with self-employment, is limited only to firms under a common convex hull in order to not skew the size of results.Originality/valueThis study contributes new understanding of the financial relationship of self-employed firms and occupational licensing costs using firm-level observations of sales and firm structure. This has important policy implications for the development and evaluation of occupational licensing policies when considering effects on the self-employed.

Barriers to entry: an empirical account of business creation difficulties in the United States 2011

“…Despite government attempts to attract business through incentive schemes or even to prevent bad business practices from altering the marketplace, empirical evidence suggests that facilitating business development through incentives does little and, in the case of regulation, it can actually hurt (De Soto, 2002; Klapper et al. , 2006; Minniti, 2006; Kreft and Sobel, 2005; Bruce and Mohsin, 2006; Plemmons, 2020; Johnson and Kleiner, 2020). Indeed, many studies [4] have shown negative business entry rates associated with government business regulation generally, and several eminent cross-country studies that have evaluated the impact of entry-specific regulation on firm development have found similar relationships.…”

“…See, for example, Kleiner (2000), Kleiner and Krueger (2013), Kleiner (2006), Kleiner et al. (2016), Plemmons (2020), Timmons (2021), Thornton et al. (2017), Timmons et al.…”

“…(2002), Klapper et al. (2006), Korutaro and Biekpe (2013), De Soto (2002), World Bank, 2016, Plemmons (2020), Timmons et al. (2018), Timmons (2021).…”

“…In contrast to market or occupation-specific barriers, such as in the robust occupational licensing literature. See, for example, Kleiner (2000), Kleiner and Krueger (2013), Kleiner (2006), Kleiner et al (2016), Plemmons (2020), Timmons (2021), Thornton et al (2017), Timmons et al (2018).…”

“…See the Business Dynamics Statistics Variable Codebook for more detailed information on the outcome variables 13. See Djankov et al (2002), Klapper et al (2006), Korutaro andBiekpe (2013), De Soto (2002), World Bank, 2016, Plemmons (2020, Timmons et al (2018), Timmons (2021.…”