Occupational Licensing

Occupational Licensing Reform Becomes a Cause Both Republicans and Democrats Can Love

Nobody should need permission to make a living-especially when requiring that permission just lines the pockets of a favored few.


The White House recently announced $7.5 million in grants to organizations working to reduce licensing requirements and make those that remain portable across state lines.

"Today nearly one-quarter of all U.S. workers need a government license to do their jobs," a White House press release publicizing the grants noted. "The prevalence of occupational licensing has risen from less than 5 percent in the early 1950s with the majority of the growth coming from an increase in the number of professions that require a license rather than composition in the workforce."

The proliferation of licensing rules tends to "artificially create higher costs for consumers and prohibit skilled American workers like florists or hairdressers from entering jobs in which they could otherwise excel," the release continued.

The announcement by a Democratic president came just a month after Arizona's Republican Governor Doug Ducey signed several bills "to begin the elimination of burdensome licensure of scores of odd jobs—regulations that are often designed to kill competition or keep out the little guy, including the elimination of licenses for talent agents."

Then, at the end of June, a bipartisan group of federal lawmakers introduced the Strengthening Career and Technical Education for the 21st Century Act. The bill contains language allowing states to use some of the federal money earmarked for technical education for the "identification, consolidation, or elimination of licenses or certifications which pose an unnecessary barrier to entry for aspiring workers and provide limited consumer protection."

That one-quarter of Americans require government permission to do their jobs has become such a problem for economic liberty and opportunity in this country that its recognition crosses party lines at a time when Republicans and Democrats agree on little else. More importantly, efforts to actually correct the situation also transcend partisanship. Having purchased political support by imposing licensing laws that protect existing practitioners in a host of industries from competition, politicians seem to be realizing that they went way overboard and are killing the host on which they feed.

And not a moment too soon.

Just days after the White House announcement, the influential Brookings Institution released a new paper arguing that widespread occupational licensing causes even greater damage than was previously recognized by such critics as President Obama and Governor Ducey. By protecting them from competition, licensing boosts wages and job security for licensed workers relative to their unlicensed counterparts, and it reduces worker mobility because credentials are generally no good across state lines.

"Lower wages and higher unemployment rates for unlicensed workers, as well as reduced migration rates for those with licenses, all suggest that the social costs of licensing are larger than many have previously believed," author Ryan Nunn, an economist, concluded.

The Brookings paper was just the latest entry in a growing body of research that views occupational licensing not primarily as a means of protecting consumers from unqualified contractors or massage therapists, but as an exercise in rent-seeking that erects barriers to entry into a host of fields and thereby favors existing practitioners.

"[T]he higher the rate of licensure of low-income occupations, the lower the rate of low-income entrepreneurship," reported economist Stephen Slivinski in a 2015 Goldwater Institute study that was subsequently cited by the White House. Legal entry-level economic opportunities are choked off by expensive and burdensome licensing requirements—a huge problem since "Entrepreneurship among low-income households has been shown in numerous studies to be an effective means of alleviating poverty and encouraging income mobility."

Slivinski recommended that existing restrictions be sunsetted and replaced by private certifications that would act as seals of approval without preventing entry. Start-up entrepreneurs could seek certification or not, depending on their means and inclination.

This loss of opportunity would be bad enough if it were the enormously high price we pay for consumer safety. But researchers find that licensing laws have little if anything to do with protecting the public.

There was "evidence from several professions and trades that indicates that restrictive licensing may lower received service quality," at least as early as a 1981 study.

And that's true even in some highly skilled professions where credentials are supposed to matter the most.

"[I]ncreasing the restrictiveness of optometrists' licensing examinations had a positive and statistically significant impact on the price of the eye examination and eyeglasses but had a statistically insignificant impact on the quality of the eye examination," wrote Deborah Haas-Wilson, a professor of economics at Smith College.

"By and large, optician licensing appears to be reducing consumer welfare by raising the earnings of opticians without enhancing the quality of services delivered to consumers," Edward J. Timmins of Saint Francis University and Anna Mills of the Mercatus Center found when they addressed the topic last year.

Likewise, "more 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," reported the University of Minnesota's Morris M. Kleiner.

So, if licensing doesn't seem to improve the quality of at least some forms of health care, what benefit does it provide the public when applied to barbers, geologists, manicurists, or plumbers?

Not a lot, is the obvious answer—so obvious, that the government officials who choked off opportunity and raised prices by imposing occupational licensing are starting to undo their mistakes.

The rollback of licensing requirements for a few professions in Arizona, similar moves in Kentucky, Iowa and elsewhere, bipartisan federal legislation, and the White House grants are evidence that the tide may be turning. May be, because licensing advocates still have enough clout to defeat reform efforts in North Carolina and put up fights around the country.

But it's clear that the advocates of restrictive licensing have lost credibility, and that growing ranks of Americans recognize it's long past time for reform.