As Brian says skill will get the Job done. Licenses have there place too and so do other adornments a contractor can add to his or her skill set/persona to make it in the niche they want to fill and according to the extent they want to try to fill it.
Another pragmatic factor is really also about the contractor as much as the client; How much do you have to lose? Licensing and liability insurance go hand in hand when personal assets could be targeted. Beyond these concerns word of mouth and a handshake is really pretty reasonable in many situations.There are other ways to accomplish risk management.
Not everyone who needs a little plumbing or painting or even a room addition or full house can afford,or wants to pay the guy who preps himself for a designer niche and needs to protect a bundle of assets or future earnings.
Everyone needs to make a living, so I don’t begrudge anyone for “cutting into the possible work available” or lowering the possible value of that work. What you do when you do that is beg for the government, because you took a test and paid your $300 every two years to stay “active”, to fend for registered contractors with it’s regulations against people who don’t do those small things. That is just not “small government” enough for me. I understand that quality and safety are issues but saying someone can only take jobs for $750 or less, in materials and labor, if they are unlicensed is not taking care of that. Sounds like stratification to me.
I think it is likely that those who complain about unlicensed contractors or against those who employ “illegals” or pay cash to unlicensed subs, have their secret tricks too. They are just tricks that don’t hinder them in the particular niche they are striving to work.
