The impact of potential labor supply on licensing exam difficulty

• Entry into licensed professions typically requires passing licensing examinations.
• The number of individuals wishing to enter a profession is the potential supply.
• Larger potential supply is correlated with more difficult licensing exams.
• Occupational licensing may partially shelter the market from supply shocks.
• Occupational licensing may limit the impact of labor supply policies.

Entry into licensed professions requires meeting competency requirements, typically assessed through licensing examinations. This paper explores whether the number of individuals attempting to enter a profession (potential supply) affects the difficulty of the entry examination. The empirical results suggest that a larger potential supply may lead to more difficult licensing exams and lower pass rates. This implies that licensing may partially shelter the market from supply shocks and limit the impact of policies targeted at increasing labor supply.