Occupational Licensing Hurts Just About Everyone, Says White House
Licensing restrictions cost millions of American jobs and raise consumer costs by billions, federal officials say.
Horse masseurs. Hair braiders. Funeral attendants. Florists. All are subject, at least in some states, to "occupational licensing," defined by the Treasury Department as "a government permit allowing workers to legally practice." Since the 1950s, the number of U.S. jobs where workers are required to be licensed by the state has increased five-fold, now encompassing about a quarter of our working population. Far from being merely a minor inconvenience for workers, this excessive licensing regime "creates substantial costs, and often the requirements for obtaining a license are not in sync with the skills needed for the job," according to a new report from the Treasury, the White House Council of Economic Advisers, and the Department of Labor.
Libertarians have been objecting to occupational licensing on these grounds for decades, of course; the free-market friendly Institute for Justice has even been systematically suing to bring about their demise. But it's rare to see federal agencies recommend against more economic regulation, so let's all just savor this small victory a moment. The scathing report paints occupational licensing as a regulatory scheme that serves almost no one any good—raising consumer costs while failing to deliver improved quality; reducing employment opportunities, especially among the most economically vulnerable; and hampering state-to-state mobility and market innovation.
"By one estimate, licensing restrictions cost millions of jobs nationwide and raise consumer expenses by over one hundred billion dollars," the report authors write.
"Consumers are likely most familiar with licensing requirements for professionals like dentists, lawyers, and physicians," they point out, "but today licensing requirements extend to a very broad set of workers," including auctioneers, scrap metal recyclers, barbers, manicurists, eyebrow threaders, and tour guides. This means that an ever-growing share of jobs "are only accessible to those with the time and means to complete what are often lengthy"—not to mention expensive—licensing requirements, while the penalties for working without a license can include job loss, fines, and even incarceration.
Yet stringent occupational licensing seldom delivers improved services or safety to consumers. In 10 out of the 12 empirical studies reviewed by the report authors, stricter licensing was not associated with quality improvements.
Here are a few other key findings from the report:
Occupational licensing laws raise consumer prices. Studies may show that strict licensing laws do not increase the quality of goods and services, but they do drive up their costs. In nine of 11 studies reviewed, "significantly higher prices" came with stricter licensing, note the report authors. For instance, stricter nurse-practitioner licensing requirements drove up the price of standard child medical exams by three to 16 percent. And more vigorous requirements for dental hygienists and assistants led to 7-11 percent higher prices for dental patients.
Nearly one third of U.S. workforce is subject to occupational licensing. The percentage of the U.S. workforce subject to state licensing requirements grew from 5 percent in the early '50s to 25 percent in 2008. When you add in workers subject to federal and local licensing requirements, it ups the total to 29 percent of the U.S. workforce. While some of the increase can be explained by a shifting jobs landscape (i.e., today more people work in health care than on assembly lines), the bulk of the increase (about 66 percent) is attributable to an increase in the number of professions which are licensed, according to the report authors.
Requirements vary widely by state. The state with the least percentage of its workforce licensed is South Carolina, at 12 percent, and the highest is Iowa, at 33 percent. More than 1,100 jobs now require an occupational license in at least one state, but fewer than 60 do in all 50 states. This suggests the bulk of these requirements are unnecessary, seeing as [insert regulated profession here] manages to operate unlicensed in many other states without widespread harm or chaos.
The average occupational license was required in only 22 states. Even within the same job categories, licensing particulars can vary substantially around the country, making it hard for workers to move across state lines. "For example, while all states require manicurists to be licensed, some also require proof of English proficiency," the report notes, "and the required amount of training at a state-approved cosmetology school varies from 100 to 600 hours."
They hit some populations especially hard, including…
Immigrants: In many cases, immigrants with education and training from their home countries are expected to "complete duplicative and costly requirements in order to acquire a U.S. license in their chosen career," write the report authors. This makes "it difficult for immigrants to work in fields where they have valuable experience and training" which "deprives the U.S. market of a large share of their skills, and makes it difficult for these workers to make their full contribution to the workforce."
People with criminal convictions: In 25 states, occupational licensing can be denied if an applicant has any kind of criminal conviction, regardless of how long ago that conviction was or whether it's at all relevant to the job in question.
Military spouses: Around 35 percent of working military spouses are in professions that require state licensing or certification. Military spouses "are ten times more likely to have moved across State lines in the last year than their civilian counterparts," making it especially difficult for those who need occupational licenses to easily transfer jobs between states.
People who default on student loans: In 21 states, defaulting on student loans is sufficient grounds for the suspension or revocation of person's occupational license. The policy is "misguided," suggest the study authors, "as losing an occupational license may make it more difficult for the worker to repay the student loan."
Entrenched interests benefit most. The only groups that really benefit from liberal use of occupational licensing and stringent licensing requirements are public officials and those already working in licensed fields. "Empirical work suggests that licensed professions' degree of political influence is one of the most important factors in determining whether states regulate an occupation," the report notes. And while many state licensing boards are revenue-neutral, plenty also turn a profit.
The report authors offer an array of recommendations for state occupational-licensing reform, lumped into three main categories:
1) Ensure that licensing restrictions are closely targeted to protecting public health and safety, and are not overly broad and burdensome
2) facilitate a careful consideration of licensure's costs and benefits
3) work to reduce licensing's barriers to mobility.
To the first aim, they suggest using voluntary licensing or registry systems where public safety concerns are minimal, minimizing the "procedural burdens" (such as paperwork, fees, training hours required) of getting a license, and allowing those obtaining a license "to provide services to the full extent of their current competency, even if this means that multiple professions provide overlapping services." To reduce mobility barriers, they suggest that states streamline requirements "to the maximum extent possible" and "form interstate compacts that make it easier for licensed workers to practice and relocate."
As far as federal reform efforts go, the authors suggest that federal resources "can help to incentivize state collaboration and expand resources for states to use when making their own reforms." They note that the president's fiscal year 2016 Budget includes $15 million in new Labor Department funding for the study of licensing requirements, and suggest that this go toward funding a consortium of states to analyze and establish cross-state licensing reciprocity agreements and funding research into "measurable criteria" for jobs that shouldn't be regulated.
Scott Shackford noted this Obama-budget item back in February, but he's not optimistic that the money will be used to reduce licensing burdens. "The grants feel like more like bribes to try to convince some states to take federal dollars in exchange for backing off here and there," he wrote. After all, Obama's budget also called for $500 million for "spreading the development and adoption of industry-validated credentials" and creating "employer-validated credentials where they do not yet exist." The White House's new report critical of occupational licensing may be a good sign or first step, but we're a long way at best from states actually making reforms.
