After decades of increasing barriers to entry for people looking for jobs or hoping to start businesses, occupational licensing reform is gaining traction. Reforms ease licensing rules, extend recognition to licenses issues elsewhere, and sometimes (not often enough) eliminate the requirement that people seek government permission to work. Evidence suggests that such reforms build prosperity, encourage entrepreneurship, and make it easier for people to move from place to place. But red tape still makes it difficult for people to find employment or strike out on their own, and the current economic crunch makes it more urgent than ever to sweep away these hurdles.
In Arizona, a new study finds that easing occupational licensing requirements is boosting the state's economy. It's long past time after years of increasing difficulty for people seeking work.
"Nearly thirty percent of American jobs require a license today, up from less than five percent in the 1950s," the Federal Trade Commission (FTC) noted in a 2018 report. "For some professions, occupational licensing is necessary to protect the public against legitimate health and safety concerns. But in many situations, the expansion of occupational licensing threatens economic liberty."
The silliness of requiring licenses based on hundreds of hours of training and thousands of dollars in expense so that those who make it through the gauntlet can work as hair braiders and landscapers is one of the few polices on which Democrats and Republicans can often agree. Both the Trump and Obama administrations called for reform, as did President Joe Biden last year.
Pointing out that licensing laws not only create barriers to entry but also deter people from moving from one state to another for fear of having to go through the whole process again, the FTC recommended making licenses portable. "By enhancing the ability of licensees to provide services in multiple states, and to become licensed quickly upon relocation, license portability initiatives can benefit consumers by increasing competition, choice, and access to services, especially with respect to licensed professions where qualified providers are in short supply."
But licensing is handled at the state level, where trade associations that want to limit competition for existing practitioners often gain the ears of legislators. Whenever you hear about opposition to reform efforts, that's usually the source. Nevertheless, with Arizona leading the way with HB 2569, 11 states adopted universal licensure by mid-2021 and many others increased their recognition of out-of-state licenses. Resistance eroded after states made it easier for medical professionals to practice across state lines early in the pandemic, kneecapping the case for restrictions on barbers and realtors. And the reforms are paying off.
"Arizonans have applied for 5,269 licenses under the law, and 4,723 have been issued," reports the Common Sense Institute of Arizona on the impact of the 2019 universal licensing law. "By 2030, HB 2569 is projected to increase employment in Arizona by 15,991 workers; increase Arizona Gross Domestic Product by $1.5 billion; and increase the state's population by a combined 44,376 people (particularly through increased in-migration of working age adults)."
Importantly, the report finds that "a significant fraction of these new licensees are likely to have been causally induced to migrate to Arizona by the change in law." That means expanding recognition to out-of-state licenses is doing what advocates hoped in terms of improving mobility so that it's easier for people to move around the country in search of opportunity.
Other 2022 reforms help, too. Denver recently dropped the requirement that license applicants prove that they're citizens. Louisiana will now make licensing boards justify their rules and let former prisoners find out if they're even eligible for licenses before they go through the time and expense of training for new trades. Virginia reduced required training to obtain a cosmetology license from 1,500 hours to 1,000.
"On average, the education required for cosmetology licensure costs more than $16,000 and takes nearly a year to complete," acknowledged Virginia Gov. Glenn Youngkin (R).
But, while these reforms ease the burdens on licensed workers, they don't change the fact that many people must still get government permission to make a living. That remains a problem for those of us who recognize work as right, not a privilege. It's also a liability when entrepreneurship is declining and many jobs go begging for applicants.
"Work with my coauthors on licensing suggests that it has a profound impact in reducing labor supply in both online and offline markets and creating persistent labor shortages," wrote Harvard University's Peter Q. Blair, co-director of the Project on Workforce, in March of this year.
"Generally, an occupational license requires a combination of time, effort, and money to obtain – which reduces the willingness of new workers to enter a license-gated occupation," adds the Common Sense Institute. "Occupational licensing reduces employment in gated industries by up to 18 percent, increases wages for incumbent workers by 10-15 percent, and raises prices for licensed services by 3-16 percent." The report cited data compiled by the Obama-era Council of Economic Advisors.
In response, advocates of licensing requirements usually argue that entry barriers and higher prices are the price we must pay for protecting consumer health and safety. But there's little evidence that licensing protects anybody unless you're committed to shielding existing practitioners from competition.
"Overall, the empirical research does not find large improvements in quality or health and safety from more stringent licensing," the 2015 Council of Economic Advisors report found. "In fact, in only two out of the 12 studies was greater licensing associated with quality improvements."
After all, licensing requirements vary greatly from state to state, with no discernible safety differences between, say the licensed florists of Louisiana and the unlicensed ones in the other 49 states. For the especially nervous, both the Brookings Institution and the Institute for Justice recommend voluntary certification as an alternative to licensing. That would allow consumers to choose among the certified, uncertified, and those recommended by word-of-mouth as their preferences allow.
"Occupational licensing reform is having its moment," Shoshana Weissmann wrote last November for the R Street Institute even before recent changes and new evidence that easing barriers to work improve prosperity and mobility. But as Americans struggle to start businesses and hire workers, reform should go past easing requirements that we get permission to work and entirely eliminate such rules.