Have We Been Overtraining Accountants?

Le and Shah’s study connects to the findings of two other papers that explored the accounting landscape after the 150-hour rule took effect. Yale’s John M. Barrios finds that the rule deterred people from entering the profession. MIT’s Andrew G. Sutherland, University of Amsterdam’s Matthias Uckert, and MIT’s Felix W. Vetter find that the effect was starkest for minorities and individuals from states where students tend to receive less financial aid. For all that, the increased education did not improve the quality of candidates or employers’ perceptions of CPAs, and did not reduce CPA misconduct.

While public accounting has long been sold as a stable career, it’s also an up-or-out one, as few newly hired employees at the largest firms make it to the partnership level. This means that CPAs need career choices that go beyond those firms, and professional associations promote the CPA license as a gateway to a wealth of career paths.

But, instead, the added education hours hurt career mobility, according to Le and Shah’s study. Increased accounting-specific credit requirements led to a disproportionately higher likelihood that someone would switch from one accounting job to another—and a much lower likelihood that they would switch to a position outside of accounting.

Le says this increased career attachment, compounded by economic and industry challenges that have created job uncertainty, may have worked against public accounting firms’ natural attrition expectations. Media reports mention lower attrition at the Big Four as the reason for layoffs announced in the past year.

Attachment has also hurt accountants’ bargaining power, explain Le and Shah. The educational requirements reduced occupational mobility and wages by forcing workers to make a “sunk investment in occupation-specific skills, limiting their outside opportunities. This lack of portability shifts bargaining power to employers, creating barriers to exit that suppress the licensing wage premium,” they write.

The effect carried through to earnings, where workers subject to a higher number of accounting-specific credit requirements earned less than those who were subject to fewer such requirements. This is consistent with other research, by University of Minnesota’s Morris M. Kleiner and Queen’s University’s Ming Xu, which documents that occupational licensing can reduce labor market dynamism across a wider range of professions. In the case of accounting, education specialization can reduce the expected wage premium from CPA licensing.

These and other effects of the 150-hour rule have been felt so keenly that states have now been moving to change or abandon the requirement, with at least half creating new pathways that don’t require as much education, allowing for experience to substitute for expensive college credits instead. Le says that it’s a good idea to offer options rather than only one path to becoming a licensed CPA. When public accounting firms promised job stability, increased education requirements may have made sense. But allowing students to fulfill their requirements in a different way, perhaps via relevant experience, may increase their job mobility and grant them better bargaining power.