Association for Public Policy Analysis & Management

In this paper, I examine the effects of an increase in the restrictiveness of mandatory occupational licensing on the quality of professionals. I exploit the staggered state-level adoption of an increase in the educational requirement (the 150-hour Rule) for the licensure of new Certified Public Accountants (CPAs) together with passing rates and individuals' professional histories. Using a difference-in-difference and synthetic control research design, I document that the Rule marginally increases CPA exam pass rates and reduces the candidate supply both at the state and college level, leading to an overall decline in the number of successful candidates. My analysis of LinkedIn data shows that individuals subject to the Rule are more likely to be employed at a Big 4 public accounting firm and specialize in taxation. However, Rule individuals have the same likelihood of promotion, the same duration until promotion, and exit public accounting at faster rates than their non-Rule counterparts. These findings suggest that restrictive licensing laws change the composition of the supply of new accountants, increase barriers to entry, and fail to increase the quality of CPAs.