Over the past decade, anyone wanting to become a licensed public accountant in much of the United States needed to obtain 150 hours of educational credits, enough in many cases for a graduate degree.
All those hours of specialized education, an increase over earlier requirements, were supposed to be good for accounting professionals. But they haven’t been worth it from a career and earnings perspective, suggests research by Chicago Booth’s Anthony Le and Parth Shah, a PhD student at the London School of Economics. Their research finds that accountants with more specialized training tend to be siloed into accounting careers, with less flexibility to move to other jobs offering higher pay.
The findings have applicability beyond accounting. Since 1950, the percentage of US employees whose work requires a government-issued license has risen nearly fivefold, to about 25 percent.
“Workers like the possibility of changing careers,” says Le. “If your education is structured in a way that forces you to specialize, it can severely limit those options.”
The US, like most developed countries, mandates that external audits of public companies be provided only by licensed public accountants, who serve a quasi-regulatory function that is intended to protect shareholder interests and the capital markets. CPAs are traditionally considered professionals because they acquire and maintain a specialized body of knowledge in order to deserve the public’s trust. Professional associations such as the American Institute of Certified Public Accountants, along with state-level licensing bodies, ensure CPAs live up to this trust and to the required professional standards and codes of conduct.
Licensing is enforced at the state level, and the timing and specifics for educational and experience requirements vary. For years, most states required 120 hours of training to become a CPA. Starting in the 1980s, the AICPA pushed to up the requirement, arguing that new laws made expanded knowledge imperative. It also said that increased education would boost competency and ethical behavior and increase audit quality, productivity, and wages. In 1987, Florida became the first state to introduce the 150-hour rule. Other states followed over the course of the following two decades.
Le and Shah studied the effects of the rule’s staggered and ongoing adoption, along with the way each jurisdiction combined the increased educational requirements with work-experience mandates to tailor its CPA licensing process.
In accounting, most data about technical education, skills, and career experience are proprietary, primarily held by regulators and public accounting firms. To overcome this, Le and Shah built a data set using the National Association of State Boards of Accountancy’s CPAverify tool, which tracks the career progression of licensed CPAs nationwide, and workforce research company Revelio Labs’ LinkedIn résumé data, which provide granular, position-level information about jobs. This allowed the researchers to pinpoint the effects of the increased requirements.