Occupational licensing might sound like a dull policy discussion, but it remains one of the greatest impediments to maximum human potential and economic growth. In post WWII America, occupational licensing requirements have exploded under the guise of health, safety, and quality. But the data is now in, licensing does little, if anything, except restrict social and economic mobility, and ultimately, economic growth itself.
A False Narrative
According to The Hamilton Project, in 1950 just 5% of jobs in America required a license to perform them. Today, that figure is as high as 30%. This is due, in part, to shifts in the American labor force toward high-skilled services and away from manufacturing. It is also due, however, to overzealous state regulators and lobbying by professional groups under the specious guise of “safety and health.”
In that time, however, studies examining occupational licensing effects have not found any discernible positive effects on outcomes. For example, Kleiner and Kudrle found no correlation between the difficulty of passing a dental license exam with dental outcomes. Similarly, more stringent licensing of mortgage brokers does not result in fewer foreclosures.
Licensing requirements often have little connection to the occupation they are supposed to be regulating. Take the example of hair braiding, some 16 states require a cosmetology license to perform hair braiding. The main component of a cosmetology license is the proper use of chemicals. As hair braiding does not require chemicals, the logic here is in question.
Many licensing requirements are completely illogical, unscientific, and unverifiable. In Michigan, it takes 1460 days to become an athletic trainer, but only 26 to become an emergency medical technician.
More problematic, though, licensing has spread beyond those occupations that might pose a risk to health and safety. For example, there is simply no reason that interior designers, auctioneers, travel guides, or scrap metal recyclers need licensure, yet many states require it. Even fortune-tellers require a license in some jurisdiction. How would one even judge the quality of a fortune-teller?
The narrative that licensing is an effort to ensure safety is further challenged by the fact that occupational licensing rules often grandfather existing practitioners into the new licensing regime…meaning existing practitioners do not have to meet the standards at all.
While there is consistently no positive effect on outcomes, licensing does have negative effects on pricing and employment. One study found no difference between the quality of floral arrangements made by florists in Louisiana (who must be licensed) with those in Texas (where they are not licensed). Yet, consumers paid more for floral arrangement in Louisiana.
Unsurprisingly, the brunt of the licensing burden lands on the poor who have greater difficulty jumping through the legal hoops required to get a job. The poor, frequently lack the luxury of time and money to pay licensing fees and take courses, forcing them, instead, to rely on lower-paying jobs to meet immediate short-term needs. Licensure, in effect, traps many in a continuing cycle of poverty.
In short, licensing is an unnecessary barrier to social mobility and human potential. It traps the poor in a cycle of poverty, kills jobs, and raises consumer prices. Indeed, estimates suggest that occupational licensing results in 2.8 million fewer jobs in America and cost consumers some $203 billion annually.
The path forward is simple, but not easy. First, use common sense and de-license occupations based on the reasonable and prudent person standard. If an occupation poses no material safety or health risks to the public, it should be de-licensed. Period.
While we might all agree on this, most attempts at de-licensing have been unsuccessful because once a licensing system is in place, powerful vested interests lobby to retain them. It is one reason that I have proposed a new type of democratic government that is free from such lobbying power and makes it easier to “undo” nonsensical laws and regulations.
Second, for those occupations that might still be deemed to pose a moderate safety/health risk, there is an alternative to licensing…certification. Certification is done by non-profits, rather than by a government authority, which reduces opportunities for rent-seeking.
Unlike licensure, certification does not bar those who are not certified from the market, promoting and encouraging competition, but still protects the rights and status of those who are certified. Many mechanics, for example, are certified but not licensed.
Lastly, those occupations that are deemed too great a risk to deregulate could remain licensed. That said, licensure requirements should harmonized across state lines. One’s skills and knowledge do not evaporate when one moves from California to Texas. This notion is silly and outdated.
It is time to ignore the false narrative promoted by special interests groups and make some hard choices. Such reforms, although simple, are not easy. On the contrary, they are painful and difficult. But ultimately, these reforms are necessary for the sake of millions of people kept down by the “license ceiling,” and the millions of people who buy and use products and services.
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