California's Bipartisan Push Against Occupational Licensing

Removing barriers to entrepreneurship for the poor.

In an election year, it's hard to imagine any substantive issue transcending the din of partisan bickering and resulting in meaningful proposals embraced by members of both parties. Yet such an issue is emerging in California. Many Democrats and Republicans are recognizing the role that overly restrictive "occupational-licensing laws" play in limiting opportunities for the poor, ex-convicts and veterans.

Licensing laws require barbers, contractors, interior designers and people in myriad lines of work to complete training and pass a test before legally plying their trade. It sounds reasonable at first given that everyone wants service providers to be competent in their chosen fields. Advocates argue the public's health and safety is at risk without such rules and regulations.

But the dirty secret of occupational licensing is these laws often are backed by lobbyists representing established businesses. Licensing requirements often have less to do with ensuring competence and more to do with imposing costly and time-consuming barriers that limit the competition. Costly licenses and education requirements push some professions out of reach for low-income people. Because licensing rules vary by state, it becomes tough for the spouses of veterans to gain licenses when they move to another base.

One highly publicized national example involves African hair braiders, who in some locales must spend hundreds of hours in a cosmetology program to be allowed to practice their trade—even though they may learn little that has anything to do with their particular skill. In those places, the government turns entrepreneurs who don't go through the long training into scofflaws.

California's Little Hoover Commission, an independent oversight agency, recently held a hearing in Sacramento to evaluate the situation. It eventually will make some recommendations to the Legislature. Panelists pointed to the myriad inconsistencies and counterproductive elements in California's array of occupational-licensing laws.

"In California, barbers and cosmetologists devote about one year to education or experience, and EMTs (emergency medical technicians) only one month," explained (in prepared testimony) panelist Dick Carpenter, of the libertarian Institute for Justice. "Comparisons like these lead one to question the public safety rationale underlying licensure of many occupations in our sample." California has some of the tightest restrictions in the country.

California legislators regularly propose bills that give state enforcement officials more power to fine and arrest people who are operating without a license. But this Little Hoover Commission effort recognizes that a big part of the problem is a regulatory regime that criminalizes people who are working and selling their services to willing buyers.

In his testimony, Professor Robert Fellmeth, of the University of San Diego School of Law, explained "there are some clearly necessary regulatory systems," but "a substantial portion" of California's occupational-related rules impose "unnecessary barriers to entry" and "limit entry but thereafter fail to provide an assurance of competence."

He pointed to a key problem: "Most trades have sophisticated lobbies at the state Capitol. … These are the proponents of most of the regulatory boards within the (Department of Consumer Affairs) in particular; they have actively lobbied for licensing by boards whose membership and licensing fees… they control."

Advocates for such systems ask, "How else can the state assure that these practitioners know what they are doing?" Panelists brought up several alternative ways to police these industries. For instance, voluntary certifications are a successful means to assure that people comply with industry standards. The state wouldn't stop someone from operating—but the certification tells consumers of a certain level of training.

Market competition provides checks and balances, Carpenter added. He pointed to the information available today through Yelp, Angie's List and other websites. That's more useful than simply learning whether the company has a license. After I purchased a home, the insurer sent out an inspector who flagged a potential roof problem. I would lose my coverage by a certain date if I didn't fix it. This is a perfect example of private regulation. In a private system, though, I'm free to fix the problem or find an insurance company with different standards.

Additionally, as Carpenter added, the tort system exists to address "consumer harm." There are laws against fraud and deceptive trade practices. Some laws simply require inspections (such as building inspections) or people to carry insurance or be bonded. Legislators could also streamline and eliminate some of the current rules. Some other states have embraced such reform.

California has the highest poverty rate in the nation, adjusted for the high cost of living. Instead of focusing solely on new welfare programs, the Legislature ought to eliminate barriers that poor people face as they seek jobs or try to start businesses. Reformers will face resistance from established interests, but maybe the Little Hoover effort will give them the courage they need to tackle this issue.

This column originally appeared at the San Diego Union-Tribune