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The White House Chimes In On Occupational Licensing

· August 11, 2015

Consumers may reasonably expect that their doctors and teachers are appropriately licensed. But do they expect the same for their florists? Apparently that is the case in Louisiana, which requires budding flower shop owners to pay $125 in fees and pass a written exam before obtaining a license. This is just one example of the huge growth in occupational licensing since the 1950’s. Now, more than one-quarter of U.S. workers require some government licensing to do their jobs.

Assessing the consequences of this growth in occupational licensing on the economy is the purpose of a recent White House report. The report notes that licensing is valuable in certain fields to protect public health and maintain service quality, but overly burdensome licensing (and its inconsistent regulation across states) can hinder economic growth and innovation. Workers face tougher barriers to earning higher wage jobs or moving across states to best utilize their skills. The requirements they need to meet to be licensed may not even be germane to their occupation.

Entrepreneurs and consumers also suffer from the consequences of inefficient licensing.  Entrepreneurs are hindered in developing solutions—for example, websites offering legal services may be illegal if they are seen to offer “legal advice” instead of “legal information”.   Immigrants who may want to set up their own businesses in services like nail care may be prohibited from doing so by state regulations mandating certain levels of general education. Consumers, on the other hand, almost always pay higher prices to use services requiring strict licensing requirements. The report cites quantitative studies showing that more restrictive state-level licensing of nurse practitioners raised the price of certain medical exams by 3 to 16 percent.

Just as impactful as the rise in occupational licensing is its inconsistent application across states.  Only 60 occupations are licensed in all fifty states, but in fact over 1,100 occupations are licensed in at least one state. And within the same occupation, licensing requirements vary massively from state to state. An applicant hoping to become a licensed security guard in Michigan would have to go through three years of education and training. In most other states, the process would take 11 days or less.  Different state regulations are even more burdensome in the modern digital age. Inconsistent regulations may impede the ability of a worker in one state to provide online services to consumers in another, or for a nursing student to apply online course credits towards a new license if she moves to a new state with different accreditation standards.

One might argue that this process is the natural outcome of our economy’s broad shift towards services. Indeed, service jobs are more likely to be licensed than non-service jobs. However, the report’s authors state that only one-third of the growth in licensing is attributable to a more services-oriented workforce. The rest is simply due to a rise in the number of occupations which now have required licensing.

This is an important point for the political future of occupational licensing reform. While some factors like technological development may have encouraged more specialization and licensing, the report describes more compellingly the political incentives that entrench the power of licensed practitioners. The benefits of licensing are concentrated among licensed practitioners, but the costs are more diffuse to consumers and other workers. Thus, maintaining high barriers to entering a profession and limiting the ability of unlicensed workers to carrying out similar functions is in their interest. Indeed, the report states, “Empirical work suggests that licensed professions’ degree of political influence is one of the most important factors in determining whether States regulate an occupation.” What’s more, since licensing boards are frequently paid for by licensing fees, many politicians are not faced with the challenge of finding more funding to pass extra licensing legislation.

The report prescribes several solutions to burdensome licensing regulations, including harmonization across states, sunset reviews of licensing requirements, and evaluations of how effective licenses are at protecting public health and safety. Fortunately, reform is already taking place in some areas, even fields which have historically been heavily licensed. In 2012, for example, the Supreme Court of Washington State adopted rules allowing new “limited license legal technicians” to practice limited areas of law. The requirements for being licensed this way are far cheaper and less time-intensive than a full law degree. Although “LLLTs” can’t represent clients in court, they can open up offices and set their own rates. The practice, which just began this year, will hopefully close the “justice gap” facing people who are involved in civil court procedures (like divorce) but who would otherwise be unable to retain full legal representation.

Occupational licensing represents a way that burdensome regulation can creep into existence on the basis of a genuine public good—ensuring that certain service providers are properly trained and able to provide safe and reasonable service. The White House’s report is a valuable step in the right direction. Undoing burdensome occupational licensing is an area where bipartisan political reform is conceivable—the left would want to remove barriers to work and services for low-income and immigrant communities, and the right would approve rolling back unnecessary business regulation. As the economy becomes ever more digitized and “sharing economy” work becomes more common, this development is especially welcome.

Jordan Harriman is a Policy Fellow at CCIA.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.