Rolling Back Occupational Licensing

Republicans and Democrats are starting to agree occupational licensing has gone too far

"Arizona requires licenses for too many jobs—resulting in a maze of bureaucracy for small business people looking to earn an honest living," Arizona Governor Doug Ducey argued during his state of the state address in January. "The elites and special interests will tell you that these licenses are necessary. But often they have been designed to kill competition or keep out the little guy. So let's eliminate them."

The Copper State didn't just stop at words. A bill to strip licensing requirements from several overregulated professions, including geologists, landscape architects, and yoga teachers, is now working its way through the state legislature.

You don't often see politicians flocking to reduce their reach into people's lives. To the contrary, they generally get more mileage by expanding their power to aggrandize themselves, and to curry favor with special interest groups—such as established businesses that want to make it tough for competitors to set up shop.

But Arizona's Goldwater Institute published a much-discussed report last year pointing out that occupational licensing has been a losing proposition for consumers and entrepreneurs alike.

"States that license more than 50 percent of the low-income occupations had an average entrepreneurship rate that was 11 percent lower than the average for all states," the report noted. Unsurprisingly, people with limited resources get whacked the hardest. "[T]he higher the rate of licensure of low-income occupations, the lower the rate of low-income entrepreneurship."

At the same time, "those who hold licenses within licensed professions have 15 percent higher wages than those in unlicensed professions" because of reduced competition. That's a cost that has to be picked up by those hiring the services of licensed professionals designing their yards, teaching them yoga, or providing any of a host of services in fields with limited competition.

That's a problem in a country where the percentage of the workforce covered by licensing laws rose from less than 5 percent during the 1950s to 20 percent by 2000 and 29 percent in 2006, according to research by Morris M. Kleiner and Alan B. Krueger. A lot of fields have been effectively closed to new entrants with limited resources. And Americans are paying higher bills than necessary as a result.

It might be worthwhile if we were being made safer by those legal barriers, but that's not necessarily the case—even in highly technical fields with direct involvement in health issues.

"[M]ore stringent occupational licensing of dentists does not lead to improved measured dental outcomes of patients, but is associated with higher prices of certain services, likely because there are fewer dentists," Kleiner found in a separate look (PDF) at the problem.

Goldwater's report was favorably cited just months after its publication in another report by the U.S. Department of Treasury, the U.S. Department of Labor, and the president's Council of Economic Advisers.

"By one estimate, licensing restrictions cost millions of jobs nationwide and raise consumer expenses by over one hundred billion dollars," noted the federal document.

In the age of seemingly intractable political disagreements, a Democratic White House agrees with Arizona's Republican governor that occupational licensing is a profoundly bad idea that does enormous damage to economic opportunity and household budgets. Is this (don't say it too loudly) evidence of a bipartisan breakthrough?

Maybe so. At a February Senate Judiciary Committee hearing, both Democratic and Republican senators expressed shock at the high costs and lost opportunities inflicted on the country by licensing laws.

Arizona lawmakers aren't alone in acting to undo some of the economic damage they and their predecessors have inflicted on their constituents. North Carolina legislators are similarly considering efforts to strip licensing requirements from barbers, librarians, locksmiths and myriad other occupations currently regulated by the state.

Kentucky's governor has been sent a bill eliminating licensing requirements for hair-braiders. That follows in the steps of Nebraska, which already adopted a similar measure.

When Delaware's Governor Jack Markell (D) called for easing professional licensing requirements in January, state Republicans responded with a proposal to do just that.

Even California, which regularly ranks at or near the bottom on measures of economic (and other) freedom, is reconsidering its red tape ways. The Little Hoover Commission, an independent oversight agency, is in the midst of public hearings on the state's occupational licensing laws.

And groups that battle licensing rules in the courts, like the Institute for Justice, received a boost last year when the U.S. Supreme Court ruled that state licensing boards, which are generally dominated by members of the professions they regulate, deserve close scrutiny. "Active market participants cannot be allowed to regulate their own markets free from antitrust accountability," the court said in a case involving the North Carolina State Board of Dental Examiners.

Some regulatory boards, including the Washington State Bar Association, proactively reined in their activities in anticipation of litigation. Montana is among the states considering controls and curbs on licensing agencies in the wake of the court's decision.

We may not be smart enough to avoid weighing ourselves down with stupid policies like licensing laws. But progress in Arizona, North Carolina, and elsewhere is evidence that we just may be smart enough to fix the harm once it's impossible to ignore.