Occupational licensing might sound like a dull policy discussion, but overzealous licensing requirements is one of the greatest impediments to maximum human potential and economic growth. In post WWII America, licensing requirements have exploded under the guise of protecting the public’s health and safety. But the data is now in, and in most cases, licensing does little, if anything, except restrict social and economic mobility.
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.”
Studies examining the effects of occupational licensing have not found any discernible positive outcomes for public health and safety. For example, Kleiner and Kudrle found no correlation between the difficulty of passing a dental license exam with the quality of dentistry. 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. For example, some 16 states require a cosmetology license to perform hair braiding. The main component of a cosmetology license is the proper use of chemicals, a skill set that is not needed for braiding hair.
Many licensing requirements are illogical, unscientific, and unverifiable. In Michigan, it takes 1,460 days to become an athletic trainer, but only 26 to become an emergency medical technician. In some jurisdictions, fortune-tellers require a license. How could one even judge the quality of a fortune-teller for licensure?
Additionally, licensing has spread beyond those occupations that might pose a risk to health and safety. For example, there is no reason that interior designers, auctioneers, travel guides, or scrap metal recyclers need licensure, yet many states require it anyway.
Clearly, the narrative that licensing is necessary to protect public health and safety is false. But if you require any more evidence, consider this: licensing rules usually grandfather existing practitioners into the new regime. This means practitioners established prior to the licensing rules do not have to meet their industry standards.
Licensure is, more often than not, a rent-seeking mechanism used to restrict competition. This brings negative effects on innovation and economic growth.
Negative Effects
While positive outcomes are questionable, licensing does have negative effects. By restricting competition, prices are forced up. 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.
Licensing also restricts economic mobility, the brunt of which lands on the poor who have greater difficulty jumping through the legal hoops required to get a licensed 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 short-term needs. Licensure, in effect, helps 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.
A Reform Path
The path forward is simple, but not easy. First, we should use common sense and de-license occupations based on the reasonable and prudent person standard. If a reasonable person would deems that an occupation poses no material safety or health risks to the public, it should be de-licensed. Period.
While this seems logical, most attempts at de-licensing have been unsuccessful because powerful interests lobby to retain them. It is one reason that we 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 be deemed to pose a moderate safety/health risk, there is an alternative to licensing…certification. Certification reduces opportunities for rent-seeking because it is done by non-profits, rather than by government authorities.
Also, unlike licensure, certification does not bar those who are not certified from the market. Instead, it protects the status of those who are certified while encouraging competition. Many mechanics, for example, are certified but not licensed.
Lastly, those occupations that are deemed too great a risk to de-license would remain so. That said, licensure requirements should harmonized across state/provincial borders. An individual’s skills and knowledge do not evaporate when he moves from California to Texas. Yet, many licenses are not currently portable or transferable.
We mustn’t listen to the false narrative peddled by special interests groups. We should engage in pragmatic and reasonable reforms for the sake of millions of people kept down by the “license ceiling,” alongside the millions more who rely on their products and services. All we need is common sense and political will.