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

Occupational licensing at the local market level often coexists with labor mobility across local markets. This study examines a labor market where a district-specific entry (licensing) examination is paired with labor mobility across districts. Licensing regulation brings unintended consequences: extreme heterogeneity across markets in licensing exam difficulty, with differences in pass rates up to 50 percent, discriminatory 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 model of occupational licensing, labor mobility, and strategic interaction among licensing boards theoretically 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.