Why Does Hawaii Hate American Workers?
With occupational licensing rules that benefit favored friends, state governments raise barriers to prosperity for millions and raise costs for the rest of us.
In Hawaii, it takes an average of 988 days and $438 in fees to become licensed to perform one of many occupations under the thumbs of state regulators. Given that the average requirement across the United States to enter such fields as painting contractor, landscaper, or manicurist is an already burdensome year of people's lives and $267 in fees, you have to wonder what officials in the Aloha State have against people trying to make a buck.
But Hawaii isn't the only offender—and in some ways it's not the worst, given that it licenses "only" 63 of 102 mostly lower-income occupations examined in a recent report from the Institute for Justice. Louisiana and Washington are both the worst offenders in this sense, imposing licensing requirements on people seeking work in 77 of the jobs examined in the report. Or you could combine the worst of both worlds, like California which licenses 76 occupations at an average of $486 in fees and 827 days in time, or Nevada which requires an average $704 in fees and 861 days for 75 jobs.
Ouch.
"In 1950, only about 1 in 20 jobs required a license," Labor Secretary Alexander Acosta noted during a speech to state legislators on July 21 of this year. "Today, more than 1 in 4 Americans need a license to legally perform their work." He added, "Taking up this issue is one way that you, as legislators, can have immediate, consequential and measurable impact. You have a tremendous opportunity to help create millions of jobs, without spending a dime."
Acosta voiced rare bipartisan concerns in this politically tribal day and age. The preceding Obama administration was also worried about the proliferation of occupational licensing, warning in 2015, "Fewer workers means higher wages for those who secure a license, but lower wages for excluded workers and higher prices for consumers. Research finds that more restrictive licensing raises prices for goods and services provided by licensed professionals by between 3 and 16 percent."
Bipartisan agreement that occupational licensing is out of control! That means we can make progress, right?
Well, some.
Arizona, where I live, for instance, has eliminated licensing requirements for a handful of occupations. These are "regulations that are often designed to kill competition or keep out the little guy, including the elimination of licenses for talent agents," in the words of Republican Gov. Doug Ducey's office. But explicitly eliminating licensing requirements for more jobs has been challenging—the state still licenses 68 of the 102 occupations examined in the IJ report, at an average of $612 in fees and 765 days. So Arizona has taken a new tack, this year adopting a law that eases the way for people to sue the state government over licensing requirements that restrict competition and create unnecessary barriers. Really, that's all of them, so this could be promising. Another law requires regulatory boards to justify their licensing requirements.
Why the tough battle to achieve reform that enjoys bipartisan support? Apparently, so we're told, it's to save us from doom. Advocates of licensing constantly invoke health and safety concerns.
Without licensing, "Any person without any formal education would be able to practice cosmetology, putting consumers at risk of injuries, burns, infections, and the spread of diseases, such as hepatitis and Methicillin-Resistant Staphylococcus (MRSA), due to unsanitary practices," argued Bridget Sharpe, Manager of Government Affairs for the Professional Beauty Association.
Sure. Except that a 1997 study by Morris M. Kleiner and Robert T. Kudrle, of the University of Minnesota, found that "increased licensing restrictiveness did not improve dental health, but did raise the prices of basic dental services." Yes, that means that licensing hasn't improved the quality of dentistry. So the argument that it saves us from the risks of unregulated cosmetology seem a bit unpersuasive.
Also illustrative is the fact that jobs licensed in some states go unburdened by such requirements in others. Florists are licensed only in Louisiana, for example. The rest of us just have to take our chances with the unlikely perils of floral anarchy. Seven states license tree trimmers. Fourteen states license locksmiths. Are the people in states that don't require licenses in these fields really in more danger? There's no evidence to suggest that's the case—unless you're talking about the "danger" of greater choice and competition. As the IJ report points out, "in 2012, Louisiana had just 32 braiders legally allowed to serve the whole state, while Mississippi had over 1,200." Unsurprisingly, Louisiana licenses hair braiders, while Mississippi does not.
As you might expect, people lucky enough to hold licenses in regulated fields see the barriers to entry as a feature, not a bug.
"Too often, the members of an occupation gain effective control over the quasi-public board that regulates their profession. Once this happens, private actors wield their government-granted power to block potential competitors from entering 'their' market," writes Maureen K. Ohlhausen, Acting Chairman of the Federal Trade Commission, in a foreword to the IJ report.
In raising barriers to competition, regulators and the industries that capture them also create hurdles to mobility between states.
"When a worker has made large investments of time and money in obtaining a license from a particular state, she will be understandably reluctant to move to another state and again pay the costs of becoming licensed, even when job conditions are better elsewhere," wrote Ryan Nunn last year in a separate report for the Brookings Institution. That locks people in place, hurts prosperity, and puts two-income families in a bind when opportunity across state lines for one partner may require another round of expensive licensing challenges for the other.
The Brookings report suggested interesting alternative means of addressing licensing advocates' alleged health and safety concerns. "Some are purely private: third party organizations with relevant expertise can attest to the competence of a worker, often through a private certificate or reputational markets like Yelp can help consumers share their experiences with particular workers."
Good reviews and seals of approval could accomplish the screening that licensing is supposed to give us without barring go-getters from starting new jobs or denying choice to customers. Of course, established businesses could no longer bar competitors from their fields.
Too bad.
There aren't too many issues on which Americans agree these days. That occupational licensing is completely out of hand is one of the few points of accord—with the exception of the grifters who benefit from such barriers and don't care about the impact on other people's opportunity, choice, and prosperity. Reforming the rules is a fine means by which government officials in Hawaii—and Louisiana, and Washington, and every other state in the union—can demonstrate that they don't actually hate American workers. They might even make life freer and better in important ways.