Entry barriers and business dynamism: Evidence from occupational licensing reforms

Julia Bredtmann, Sebastian Otten and Timo Rammert

No 1193, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: We examine how occupational licensing shapes entrepreneurship in Germany's crafts sector. We exploit two sequential reforms that shifted entry barriers across occupations: a 2004 deregulation that relaxed licensing requirements and a 2020 partial re-regulation that reinstated them for a subset of crafts. Using administrative universe data at the occupation-year level and event-study difference-in-differences designs, we find that the 2004 deregulation led to a large and persistent increase in firm entry, a lagged rise in firm exits, and an expansion in the stock of firms. At the same time, completed master examinations declined markedly. The 2020 re-regulation reverses these patterns: master examinations increase, while firm entry, firm exit, and the stock of firms fall relative to occupations that remained deregulated. Overall, stricter entry requirements raise investment in formal credentials, yet reduce entrepreneurial turnover and market dynamism.

Keywords: Entrepreneurship; business dynamism; firm entry and exit; regulatory barriers; occupational licensing (search for similar items in EconPapers)
JEL-codes: J24 J44 L26 L51 M13 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:335898

DOI: 10.4419/96973378

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