MENU

Reason.com

Free Minds & Free Markets

Worried About Economic Inequality? Get Rid of Occupational Licensing

State licensing laws for low-income professions limit access to jobs and restrict mobility for those who have them. That's a recipe for economic inequality.

For individuals seeking work in many low-income professions, state licensing laws serve as a barrier to entry by requiring time-consuming and expensive classes before a job can be had.

Even after obtaining one of those important government-issued permission slips, new research suggests, workers in many licensed professions continue to suffer from the economic burdens imposed by occupational licensing laws.

"Licensing may limit entry into a profession and reduce the potential earnings of those attempting to enter that profession," say researchers from St. Francis University in Pennsylvania, Campbell School of Business in Georgia, and Central Michigan University. Their findings are contained in a study released Tuesday by the Archbridge Institute, a nonprofit that works to promote economic mobility for workers. "In addition to raising prices for consumers, occupational licensing may be creating barriers to opportunity that prevent the least fortunate Americans from achieving the American dream of prosperity."

Economic mobility is closely tied to physical mobility. But licensed workers often end up locked into place by licensing laws that create not only a barrier to entry, but a barrier to exiting certain states in favor of looking for work somewhere else. A 2017 study by researchers at the University of Minnesota found that workers whose jobs require a state-issued license lose out on between $178 million and $711 million they could have earned by moving to a different state. The new report from the Archbridge Institute is an attempt to go a step beyond that calculation and determine how that lost income affects economic inequality.

Workers in low- and moderate-income professions in states with high levels of licensure—like Louisiana, where Gov. John Bel Edwards, a Democrat, has called for a reduction in licensing requirements—demonstrate less upward mobility than workers in states that have lower licensing burdens, like Oklahoma. Louisiana licenses 59 out of 120 low-income professions included in the study, while Oklahoma licenses only 15 of those same professions. The growth of licensing corresponds with an increase in economic inequality by between 4 percent and 15 percent depending on the state, the study suggests.

Archbridge Institute: Too Much License? A closer look at occupational licensing and economic mobility (4/10/18)Archbridge Institute: Too Much License? A closer look at occupational licensing and economic mobility (4/10/18)

State policymakers who are serious about tackling the issue of income inequality need to consider the role that licensing plays in perpetuating that problem. It does not make sense to prevent someone from earning a living as, say, a barber merely because they did not finish high school and therefore do not meet an arbitrary requirement for a state license. And it makes even less sense for states to require expensive and time-consuming re-licensure processes when workers move from somewhere else.

A possible solution to the second problem is the establishment of interstate compacts that recognize out-of-state licenses and allow reciprocity across state lines. That's something the Federal Trade Commission has been encouraging state lawmakers to consider.

Fixing the first problem requires a complete reevaluation of why licensing laws exist in the first place. They are meant to protect the public, but too often become tools for incumbent license-holders to wield against would-be competitors. But it's now become clear that fencing out competition does significant damage to more than just the specific workers who are unable to obtain a license—such restrictions also drive an economic wedge between licensed workers and unlicensed ones. The former group benefits when opportunities are removed opportunity from the latter. Economic inequality increases as a result.

This makes perfect sense. If state policy is stopping some individuals from obtaining employment, those individuals are naturally going to fall behind their gainfully employed peers, particularly if the same state policy is boosting the earnings of those who are able to work in a protected profession. Loosening licensing laws, therefore, must be a fundamental part of tackling economic inequality.

Photo Credit: Jeff Malet Photography/Newscom

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Fist of Etiquette||

    Licensing may limit entry into a profession and reduce the potential earnings of those attempting to enter that profession...

    Do they think licensing boards don't know this? It's kind of the point. That and the fees.

  • Get To Da Chippah||

    Eric doesn't care about the children that could potentially be exposed to the horrors of unlicensed African hair braiders.

  • ||

    Economic inequality increases as a result.

    Oh well. Don't care. I guess Eric cares. Not sure why. Must not have his decoder ring yet.

  • Cousin Avi||

    Put me down in the "don't care about divisive claptrap" column.

  • Fist of Etiquette||

    It's a good argument to use on people who do care about such things.

  • Cousin Avi||

    Wait, you think they listen?

  • Zeb||

    When inequality is caused by government interference in the economy, I think it is a legitimate thing to worry about.
    Inequality beween the very rich and everyone else isn't a real worry. But significant inequality between the middle classes and the poor does correlate pretty strongly with some social and crime problems.

  • BestUsedCarSales||

    Exactly. Income equality has become a rallying point for people to claim more government regulation. This leads to a situation where many people who are against government regulation thinking it to be a claptrap and begin ignoring it. Which is unfortunate, because it is a big fucking problem when the government creates complex systems to keep people down and dependent upon the system. Which is practically what happens fairly often.

  • C. S. P. Schofield||

    And, as a longtime observer of the political circus, I have to wonder if that isn't an intended result....

  • JunkScienceIsJunk||

    Lots of reasons to care.

    1) Artificially manipulating the market to create (again, artificially) wide income disparities is bad for the economy as a whole. There's a great deal of evidence of this in the economic literature, especially by advocates of free market economics.
    2) The relationship between income inequality and crime is significant.
    3) Restricting socioeconomic mobility results in bad habits passed down from generation to generation -- the same thing that many of you complain about regularly.

    This article does a good job of explaining why economic mobility is intentionally restricted by governments, which means that all the bad things that go along with it are perpetuated by governments. I would think anyone who identifies as a libertarian would pay pretty close attention to the things the government is doing that depart from free market economics, and how they continue to ultimately cling to power based on the effects.

  • JFree||

    That is all true - except that Reason's focus on petty sorts of rentiership (which is all licensing is - creation of a rentier form of labor) deliberately avoids the massive subsidies and distortions provided to large rentiers by government. Course Reason will NEVER write about that sort of rentiership because it's the donor class that mainly benefits.

    It's rather silly to pretend that existing licensed beauticians and such are what is keeping other poor folks poor.

  • loveconstitution1789||

    The lawyers run state Legislatures and Congress since most politicians are lawyers.

    Until the state bar is forced to relinquish its hold on how lawyers are made, doubtful much progress with easing licensing will happen in other fields.

  • gormadoc||

    Actually, I think the current Kansas Senate has no lawyers. I know it had no lawyers last January.

  • loveconstitution1789||

    Are you serious? I am impressed. I seem to recall a few bad laws in Kansas though.

  • gormadoc||

    Yeah, it was a big deal because at least committee was required to be headed by a lawyer. The closest they had was a guy who graduated from law school but never took the bar exam.

  • silver.||

    That is insane. The US Congress is down to 40% from 80% in the 19th century. I, for one, do not want lawyers writing my laws.

  • loveconstitution1789||

    It does not take a lawyer to write a simple constitutional prohibition that has massive public support, like:
    Don't kill other humans unless in self-defense to prevent serious bodily injury.

  • Joe_JP||

    I have disagreed with the breadth of the arguments here for some time now but the concerns are valid up to a point. It's pretty easy to find regulations that are stupid or otherwise bad policy. The trouble is line drawing.

    Take this: "and it makes even less sense for states to require expensive and time-consuming re-licensure processes when workers move from somewhere else." Well, in our system, federalism provides states with broad discretion, which in practice will involve different rules for different states. This is likely to be complicated in various instances.

    Some simplification is a good idea and interstate compacts (with agreement of Congress, if necessary) is one means of addressing the issue. As to the bottom line, two things. (1) There is clearly going to be a big black/gray market here. [A market full with undocumented workers though not regularly merely called "illegals.] This provides some obviously imperfect relief. (2) The regulations are in various cases reasonable enough to meet basic tests.

  • Joe_JP||

    [cont]

    The "barber needing a high school diploma" is an easy example of something people will find stupid. I gamely argued that high school might be a rough line to deem someone with a business dealing with the public, one that is regulated in various ways (health complaints, e.g., do arise; dangerous chemicals sometimes used etc.), has the wherewithal to run the business. It's obviously a very rough line & probably a bad one.

    OTOH, some people thought the basic need for a license a bad thing here as compared to the details of one. People were upset about the amount of training required in some states. But. For instance, it would make sense to require a certain training period under a licensed barber before you can run your own business. I realize some here would not think so, but I think there is room between all/nothing.

  • ||

    I realize some here would not think so, but I think there is room between all/nothing.

    Sure. Maybe. Possibly. But it depends on what your basis is for believing that state licensure is a legitimate exercise of state police power.

    In your example, it's pretty hard to see how ensuring that a sole proprietor has the skills to run their own business should at all be covered under licensure. Because that would imply that the state should license ever sole proprietor regardless of profession. And THAT runs up against pretty clear right to work issues.

  • Joe_JP||

    I provided specific details (hair salons specifically as compared to someone selling books or something repeatedly were subject to health complaints, for example, including those involving use of chemicals that might burn hair or various other things involving cleanliness etc.) that are not covered by every profession.

    Anyway, basic business regulations will provide some barriers to entry for those unable to afford them generally speaking. A shop might have to meet various requirements and get a "license" of some sort to do business. At some point, yes, licensing requirements can get excessive. How often this goes beyond bad policy to "rights" issues, however, is unclear to me. Many of these posts are not convincing on that front to me.

  • gormadoc||

    How about the freedom of association? I should be able to pay a dude however much many I want to cut my hair, even if he's unlicensed. Everybody should be able to buy the same service simply because they have the same rights as I do.

  • Robert||

    I think if you asked economists they'd analyze it in terms of trade-off between the gains of freedom and information costs. The gains from freedom we know about. As to information cost, the argument would be that establishing certain mandatory qualif'ns relieves customers of having to do research on each practitioner—or research on certif'n organiz'ns, or research on organiz'ns that certify other certif'n organiz'ns, etc.

  • silver.||

    Good point. I think Joe_JP is considering that with all these requirements intact we can pretty much walk into any store and get safe service. Despite how arduous they are, they appear to be working, right? At this point it doesn't really matter if we trust the state that is issuing the certification because we trust the market.

    I believe that the quality of service would not appreciably decline even if these rules were abolished, since everyone currently established in the market is satisfying their customers. Even without licensing restrictions, a market entrant will have to surpass the existing businesses to achieve stable success. At that point, customers switching the new guy/girl already have all the information that would've come from a hidden licensing requirement. A line going out the door is a better advertisement than an A in a window.

    They could also be voluntary. Early patrons could choose whether they wanted to take the risk of using an unlicensed product or service.

  • loveconstitution1789||

    States don't get to do anything they want. The state Constitution needs to enumerate a power that the state legislature has for a constitutional law to be passed.

    If a state constitution allows for state government regulation of who can enter that business, then licensing seems like a derived power. We can all quibble about what the standards of licensing might be but it would constitutional for a state to use that power.

    No state constitution enumerates a government power to decide who can start a business or what your trade can be. As with many government abuses they are shams built on residents not knowing how government power works along with most citizens not fighting back against government.

  • Joe_JP||

    "No state constitution enumerates a government power to decide who can start a business or what your trade can be. "

    State constitutions enumerate power to legislate in various areas involving business and trade, which include the power to regulate such things. One traditional limit here was that certain things were barred from felons, minors, those mentally unfit etc. Specific businesses and trade also are treated in special ways be it the law, gambling or so forth. Those who have studied the matter closely can provide state by state details here.

  • loveconstitution1789||

    While there might be a traditional limit that does not per se make that a constitutional limit.

    States have gotten away with BS like these restrictions for decades because most people don't fight these laws as unconstitutional. People just say states have general police powers so much that they believe this to mean any power and that is simply not true.

    Felons have been easy targets because nobody really wants to defend felon's rights. There is a distinct line for age of majority and the ability to enter into contracts, so the barring of minors and mentally unfit would fit in there somewhere.

    Licensing has not always been so strict which is why I call BS on it being some hands-off state power. Lincoln became a lawyer after teaching himself and working in the field. Lawyers are now required to undergo background checks, fingerprinting, approved law schools, and pass a state bar exam. We know that many lawyers might have passed all these licensing requirements but are bad lawyers. Ineffective assistance of counsel is a real problem in our criminal justice system. Yet all these lawyers were licensed by a state and usually a local state bar group.

  • Robert||

    Actually the NY const'n does lay out in its educ'n provisions the duty & power of the regents to make rules about who's allowed to do certain jobs. Its Education Law is more explicit on the details, but they're founded on a constitutional provision IIRC.

  • loveconstitution1789||

    I didn't see anything like that after a quick review but if I would be happy to discuss.
    New York state Constitution

    Article 11 does mention Regents but its relating to Universities.

  • Cousin Avi||

    "Worried About Economic Inequality? "

    Nope.

  • NotAnotherSkippy||

    Indeed, but you have to make an obeisance to the progressive church to be allowed to petition for mercy.

  • Dick Puller, Attorney at Law||

    Whenever I hear the word "inequality", I reach for my revolver...

  • loveconstitution1789||

    Because you have too few bullets instead of the gun's capacity which creates an inequality?

  • Chipper Morning Baculum||

  • loveconstitution1789||

    one BIG bullet.

  • Jordan||

    It's almost as if Reason is attempting to make libertarian appeals to a broader audience, rather than preaching to the faithful.

  • Cousin Avi||

    Then they should start with something that isn't inherently non-libertarian.

  • gormadoc||

    Yeah, being hard-asses and refusing to acknowledge that some people care about things we don't has definitely worked out for us.

  • Cousin Avi||

    Yeah, having principles is "being hard-asses"

    And, who said I didn't "acknowledge that some people care about things we don't?"

    Make some sense instead of trying for childish snark.

  • BestUsedCarSales||

    What are your principles? Because I see an article detailing how laws are hurting individuals ability to improve their lives.

    And I see you attacking it because you think the language is that of a different party.

  • Cousin Avi||

    I didn't attack anything but Tony, and his sockpuppets. The article asked a question and I answered it.

    At no point did I attack the article, so I'm not sure why you're lying.

  • BestUsedCarSales||

    You referred to it as inherently non-libertarian. You can change "attack" to "disagree" if you think the language I used was too strong, but the point remains that you disagreed with the article, and described as inherently non-libertarian. And I am arguing that the point it is making is not inherently unlibertarian. I believe that looking at the way government intervention negatively impacts our lives is a relatively standard libertarian position.

    So now I am asking you to clarify how it is not.

  • Cousin Avi||

    "You referred to it as inherently non-libertarian. You can change "attack" to "disagree""

    I'll stick with lie, because as you admit, it wasn't an attack.

  • BestUsedCarSales||

    So you're going to double down on a semantic argument where we're disagreeing on the level of strength implied by using the word "attack" versus "disagree"?

  • Cousin Avi||

    Well, it's not a semantic attack. it's a lie.

  • BestUsedCarSales||

    What is the lie?

  • Cousin Avi||

    That's been covered.

  • Cousin Avi||

    It's just really weird that some guy with a short history here comes out of the woodwork to lie about what I'm doing and defend Tony's sockpuppets.

  • BestUsedCarSales||

    Is that me you are charging? Because I am relatively new, but I'm here all the time now so there's not coming out of the woodwork for me.

    And finally, you believe in reasoned debate. Let's just say I am Tony, that everyone here is Tony. Everyone but you. Then it doesn't matter, because you're arguing against ideas, who is making them is not meaningful in a reasoned debate.

  • Cousin Avi||

    It's just really weird that someone with a short history comes out of the woodwork to lie, and defend Tony's sockpuppets.

  • Cousin Avi||

    " Then it doesn't matter, because you're arguing against ideas, who is making them is not meaningful in a reasoned debate"

    Sounds like something Tony running a sock would say.

  • gormadoc||

    It's not worth it to argue against a user who's been here for two days about who's a sock and who isn't. I've noticed that every now and then some new person pops up for a day with wild accusations that half of the commentariat is a sock puppet.

  • Cousin Avi||

    Oh wait, I get it, this is Tony trolling with his sockpuppets, Jordan and gormadoc. How sad.

  • loveconstitution1789||

    Tony's handle is flamed.

  • Cousin Avi||

    So is BestUsedCarSales

  • silver.||

    BUCS ain't Tony. I've seen them in the same thread multiple times. Infallible proof.

    I also agree with BUCS here. The government should stay out of everyone's business and let citizens decide what businesses to patronize. Simple. That's pretty much my definition of libertarianism exactly.

  • NotAnotherSkippy||

    He's clearly not tony, but the answer to his question is in the final sentence of the piece. The entire presumption is that inequality is a thing to be fixed. Government interference is a thing to be removed, but inequality in and of itself is irrelevant.

  • BestUsedCarSales||

    I'm curious as to what your definition of inherently libertarian is that doesn't include government regulation fucking people over.

  • JunkScienceIsJunk||

    How is it inherently non-libertarian? The only non-libertarian component of it is what you INFER about the message of inequality. It's like you're waiting for the other shoe to drop -- democrat nonsense about welfare and affirmative action, etc. But if you came into it with an open mind, and didn't presume you knew what the suggestions were going to be, you'd notice that there's nothing inherently non-libertarian about the concept of reducing economic inequality.

    The key here is that LIBERTARIAN PRINCIPLES are being advocated for reducing economic inequality.

  • Cousin Avi||

    Jesus ANOTHER sock, Tony?

  • silver.||

    Alright guys. We got trolled. GG, Cousin Avi.

  • Zeb||

    And inequality caused by governmental economic interference is something that libertarians can and should worry about.
    Of course there is no libertarian case to be made for government using force to remedy inequality through redistribution or affirmative action or whatever. That doesn't necessarily mean that inequality doesn't matter at all or can't ever be a problem. There is evidence that high levels of economic inequality correlates with more people murdering each other.

  • Jerryskids||

    Income inequality means some people have too much, not that some people have too little. What good does it do to help the poors get more when the whole problem is that the rich are getting more than their fair share? This is why the people who focus on raising the minimum wage are so misguided, we need to be focused on mandating a maximum wage. My simple proposal is that anybody who makes more than me should have their excess profits taxed at 100%. Or maybe people who make more than 10% more than me, I'll have to see how much money I make this year.

  • JunkScienceIsJunk||

    When the source of wealth for a lot of wealthy people comes either directly from taxpayer funding, or comes as the result of anti-competitive government policies that are directly at odds with free market principles, then the question most certainly SHOULD include "why are the rich getting more than their fair share?"

  • NotAnotherSkippy||

    Show me where in the set of real numbers lies "a lot." And define rich while you're at it.

  • JunkScienceIsJunk||

    1) Keynesian-like bipartisan-supported economic policy: the entire economy is built around government interference, including the bipartisan goal of "employment" as a measure (AND means) of economic prosperity. Many of the departures from free market principles in this vein disproportionately benefit the people who stand to benefit from these policies - namely, wealthy businesses and the people who make money off them.

    2) Incorporation: while there is a lot of debate among libertarians about whether incorporation would exist in a truly free market society, I think there's agreement that the current snapshot of what incorporation is and the benefits it bestows would NOT be permitted in a free market society. It's an artifice that protects and enables. And it ain't the poor who it's protecting and enabling.

    3) Intellectual property enforcement: regardless of your stance on IP (and obviously this is another hotly debated topic among libertarians), free IP enforcement and access to the court system and the entire enforcement apparatus disproportionately benefits those who stand the most to gain from it.

    4) Tariffs, taxes, licensure, regulation, and labor laws: see this article. Extend it to the other things I list. It's all protectionism, and it always benefits someone at someone else's expense. Usually it benefits producers at the expense of consumers. The distribution of wealth among those two groups is the main point here.

  • jerbigge||

    Solution is to eliminate licensing and replace it with certification. Give people more freedom to work and use what talents they have to support themselves. Let their customers decide what is the most important to them. Then give people the freedom to make decisions for themselves. Of course this will quickly be opposed by leftists, who will claim that we are not "competent" to make these sort of decisions for ourselves.

  • Tom Beebe||

    made the same comment before reading this, so I'll just add the phrase "Inform, not enforce".

  • JunkScienceIsJunk||

    "Of course this will quickly be opposed by leftists"

    And right wingers. The "eliminate licensing" thing is ours, and we don't have an ally in either of the major parties.

  • flyfishnevada||

    I don't think this is all just about squashing competition. I'm sure there's some kind of "we'll raise wages if we're licensed" BS going on too. Politician love that shit. If they even suspect they might raise some poor schmuck out of poverty through use of some bureaucratic apparatus, they're all over it.

  • Tom Beebe||

    I have suggested that certification be substituted for licensing. Let customers check the wall of their barbershop to see if he has met the state's requirement but let them go ahead without that certification if they so choose.

    If you like that idea, use my rallying cry: "Inform, not enforce"

  • springjourney||

    Licensing is not a bad thing, as long as process of obtaining license is not in the hands of professional organization or professional lobbyists.

  • JunkScienceIsJunk||

    ...or government.

  • Echospinner||

    It is a difficult issue.

    Just a few things requiring at least a state license or permit where I live.

    Pilot

    Medical surgeon or doctor

    Massage therapist

    Commercial driver

    Cosmetologist

    Registered Nurse

    Pharmacist

    Electrical contractor

    Casino employee

    Real estate agent

    Scrap metal dealer

    What is a libertarian to do?

    Medical i know something. It works well most of the time. For nurses, docs, nuclear medicine techs, pharmacy, by having a system which is mosty internal and recognized by state and federal you have something not perfect but can be reasonably trusted by the consumer.

    When I board an airplane I have high confidence, not perfect but I trust the airline crew within a reasonable level.

  • gphx||

    The fact various professional licenses are often revoked proves the licensing system doesn't guarantee anyone is qualified for anything.

  • pemaintoto||

    Saya tidak setuju dengan luasnya argumen di sini untuk beberapa waktu sekarang tetapi kekhawatiran tersebut berlaku hingga titik tertentu. Sangat mudah untuk menemukan peraturan yang bodoh atau kebijakan yang buruk. Masalahnya adalah gambar garis.

  • swampwiz||

    Of course, a worker that requires a rentier credential is able to take advantage of the economic friction to boost his own labor market value ...

  • prediksifajar||

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online