The Impact of Potential Labor Supply on Licensing Exam Difficulty in the US Market for Lawyers
This paper provides the first systematic evidence of variation across states and over time in the number and quality of individuals attempting to enter a regulated profession (potential supply), and in the stringency of entry requirements. There are surprisingly large differences in the difficulty of the entry examination in the market for lawyers both across states and over time. The paper explores the possibility of a link between potential supply and the difficulty of the entry examination. At the cross-sectional level, the data is consistent with growth in potential supply leading to more difficult licensing exams. Also the timing of changes in standards at the US level is consistent with this hypothesis. However, the existing data does not allow drawing final conclusions from within-state variability in exam difficulty.
This paper provides the first empirical evidence of a positive impact of the quality and number of potential entrants on entry requirements in professional markets. The estimated effects are so large that increases in the quality of candidates are completely offset by increases in exam difficulty and therefore do not lead to any long run increase in the number of successful candidates. Variations in the number of candidates are also significantly (but not completely) offset by changes in exam difficulty. About one third of the additional candidates that otherwise would have passed the examination fail because of the increase in standards. These results are not in line with public interest theory of licensing. The classic rent seeking view of licensing can explain some (but not all) of the results.
professional licensing, legal market, bar exam, minimum standards,entry regulation
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