Occupational Licensing

Does the Federal Government Have a Role to Play in Combatting Bad State Licensing Laws?

Yes, but only because states have abdicated the responsibility themselves.



It's still illegal to sell flowers in Louisiana without being a licensed florist. You're still not allowed to sell caskets in Virginia without being a licensed funeral director.

Those are outliers inasmuch as most states don't require licenses for those activities. But they're typical in that, like many licensing laws, they don't protect the health and safety of the general public. All they really do is restrict economic freedom by unfairly limiting competition in certain professions.

They are also exactly the types of laws that the Restoring Board Immunity Act, introduced last week by Sen. Mike Lee (R-Utah), wants to convince states to repeal, or at least reform. Lee's bill would create a limited, conditional exemption shielding licensing boards from federal antitrust lawsuits, but only for states that change how their licensing boards operate and how courts handle disputes between those boards and individuals subjected to their rules.

That sounds complicated, but it's not. The bill gives states a two options for reform; states that choose one of the two will be protected against future lawsuits challenging their licensing boards for behaving like private cartels. It allows states to retain licensing boards that serve legitimate public health and safety interests, but nudges them to change laws that serve no such purpose. If they want, of course, states can choose to do nothing.

Lee has positioned his bill as a federal solution to a state problem, but that opens up a legitimate criticism. Should the federal government play any role in telling states what to do? That rarely works well for states, warns Sarah Allen, a senior deputy attorney general in the state of Virginia. Allen predicted Wednesday that Lee's bill would be "unworkable" at the state level.

"I think this bill highlights a common problem when the federal government tries to mandate state behavior," Allen said at a discussion of licensing issues hosted by the Federalist Society. "It really doesn't have any idea how difficult and time consuming and expensive it is to implement these big ideas into 51 existing and different state governments, and how many revisions to state codes would be required to do so."

She's not wrong to worry. The federal government has a long history of pressuring states to do one thing or another.

Under the terms of Lee's bill, states could face more scrutiny for violating federal antitrust laws if they don't take action to bring rogue licensing boards under greater supervision, or if they don't change state laws that often tip the scales of justice in licensing boards' favor when they are challenged by individuals or businesses harmed by licensing provisions.

One option included in Lee's bill would have states increase the level of judicial scrutiny applied to licensing boards when their rules are challenged in court. Most licensing laws are currently given rational basis review—the lowest level of legal scrutiny, in which a state only has to show a law or rule is "rationally related" to a legitimate government interest. Lee's proposal would push states to impose "intermediate scrutiny" on licensing laws.

Allen says removing the legal deference granted to licensing boards will mean more challenges against their rules; without antitrust immunity, she fears, states could face huge legal bills and settlement costs. "Efforts like this bill that will increase litigation again boards will significantly add to state budgets," she warned, previewing a line of argument that a variety of interest groups are likely to raise against Lee's legislation.

The threat of those costs is very real. But that's a feature, not a bug: It's meant to motivate states to make changes that increase economic freedom.

If state officials believe the changes suggested by Lee's bill are too steep, they are free to ignore it and carry on without immunity from federal antitrust lawsuits. To reverse an argument so often made by governments: If their licensing boards aren't doing anything wrong—in this case, if they're not acting as anticompetitive cartels—then they have nothing to fear. No changes are needed.

"Nothing in the bill forces a state to take any action whatsoever," says Conn Carroll, Lee's spokesman. "In fact, the bill enhances states' freedom of action while also furthering the freedom of workers by offering states incentives to revisit occupational licensing policies that too often lock workers out of the workforce and harm consumers."

It's not improper to worry about the federal-state relationship in situations like this. But there is now an academic and political consensus about the problems created by onerous licensing laws, and about who suffers from them and who benefits.

Research from Morris Kleiner, a labor economist at the University of Minnesota, and the Heritage Foundation, a conservative think tank, shows that American households pay between $400 and $1,500 more annually for goods and services because licensing laws distort prices. Licensing laws take more than 3 million jobs out of the economy, according to the Brookings Institution, a center-left think tank.

While everyone pays for those laws, the benefits flow mostly to politically connected special interests. "Empirical work suggests that licensed professions' degree of political influence is one of the most important factors in determining whether states regulate an occupation," a 2015 White House report on licensing concluded. President Donald Trump's secretary of labor largely agrees with those Obama-era conclusions, and he has promised to work to roll back onerous occupational licensing laws. This is not a partisan debate.

Lee's bill is "a signal of the fact that a lot of people are seeing this is a problem—a problem for consumers, a problem for workers, a problem for the economy," says Maureen Ohlhausen, the acting director of the Federal Trade Commission, who earlier this year opened a new task force to focus on economic liberty issues.

And still these licensing laws persist. That's why the federal government is getting involved. Complying with Lee's legislation may pose some difficulties, as Allen argues. But try telling an unlicensed florist in New Orleans that she can't have a legitimate job because it's too hard for states to change a few lines of their legal code.