In Arizona, our contracting laws are fairly strict. The Arizona Registrar of Contractors requires anyone who performs work in excess of $1,500 (materials, labor and tax included) to be licensed.
In addition to avoiding the legal ramifications of hiring (or aiding and abetting) an unlicensed contractor there are huge financial ramifications as well. There are many stories of people being sued by the unlicensed contract or their employees should they get hurt. I even read a story recently of an employee of the unlicensed contractor suing a homeowner for wages that were never paid to the employee, despite the fact the homeowner paid the contractor in full.
In Arizona licensed contractors are required to warranty their work for two full years. They are required to pay unemployment insurance, workers compensation and follow good wormanship practices.
