The Impact of Reducing Licensing Hours
Occupational licensing is often cited as a form of regulatory capture—a situation where regulation serves the interests of industry insiders rather than those of consumers, potential entrants, or society at large. In this case, entry regulations may protect established firms by restricting competition.
In the U.S., many occupations require licenses, including cosmetology, massage therapy, nursing, teaching, construction contracting, social work, medicine, and law. Licensing requirements differ by state and occupation, but typically include some combination of formal education, exams, training hours, work experience, and continuing education.
A recent study focuses on the effects of these entry regulations in the cosmetology sector—which includes hairstyling, skincare, and nail care. Each year, approximately 200,000 students enroll in over 1,000 federally aid-eligible cosmetology schools, more than 75% of which are for-profit institutions.
The study finds that more extensive licensing requirements (measured in required training hours) are associated with higher student debt. However, these additional hours and the resulting debt do not correlate with higher earnings, suggesting that licensing acts more as a barrier to entry than a mechanism for consumer protection.
Public scrutiny of cosmetology licensing intensified following a 2012 court case in Utah. Jestina Clayton, who offered African-style hair braiding services, was challenged for operating without a cosmetology license—which would have required 2,000 hours of training and around $16,000 in tuition, despite not covering hair braiding. A federal judge ruled in her favor, calling the state’s requirement “irrational” and a violation of her constitutional rights.
Methodologically, the paper uses difference-in-differences analysis to evaluate the impact of changes in licensing requirements. The figure below illustrates the paper’s first point. The vertical axis measures total awards, that is, number of certificate or associate’s degree completions (CIP code #1204), the degree required to become a cosmetologist. The horizontal axis measures time, with the blue bars corresponding to years before licensing reform and the red bars corresponding to years after licensing reform. Each bar includes a central dot, the point estimate, and depicts a 95% confidence interval.
The difference-in-difference analysis shows a clear increase in the number of program completions in the four years after a state lowers the required hours. Specifically, the number of cosmetology certificates awarded more than doubles for programs in states that were subject to a trim in licensing hours.
The authors also find a decline in tuition and fees by about 14% in response to a cut in hours of training, a result that appears to be driven by smaller institutions. The results for student debt and earnings are less precise, but suggest a decline in debt in the post-policy years.
Finally, the study finds no evidence that reduced training compromised service quality, as measured by proxies such as wages—further reinforcing the idea that these licensing rules may do more to hinder entry than to protect consumers.
Nicolas Acevedo Rebolledo, Kathryn J. Blanchard, Stephanie Riegg Cellini
“Cosmetology Gets a Trim: The Impact of Reducing Licensing Hours on Colleges and Students”
NBER Working Paper 33936