Entry rules and fairness in regulated professions: A quasi-Experimental study of a bar exam reform

Abstract

Occupational licensing at the local market level often coexists with labor mobility across local markets. This study examines the legal profession, specifically how a district-specific bar exam impacts occupational licensing and labor mobility across districts. Licensing regulation brings unintended consequences: extreme heterogeneity across districts in licensing exam difficulty, unfair admission procedures, and inefficient mobility of exam candidates and workers. We leverage a policy change in the grading procedure of the exam, transitioning from grading within the local district to grading in a randomly assigned different district, and find that exam fairness is substantially restored following this reform. A theoretical model of occupational licensing, labor mobility, and strategic interaction among licensing boards supports our findings. This study provides the first evidence of regulatory competition driven by such interactions. Understanding how to regulate these uneven standards in bar exams can help inform the regulation of other professions where fairness and efficiency in professional licensure are critical issues.