Dispelling three big myths about occupational licensing
OCTOBER 12, 2018
Jared Meyer Senior Fellow Victoria Eardley Research Fellow KEY FINDINGS
1 T RE T E E TT E E E E ECT E E E
2 T RE T E E E C RED CE E V E
3 T RE T E M E R E E ME E E V
BOTTO E POLICYMAKERS CANNOT ALLOW LICENSING REFORMS TO BE HINDERED BY UNDUE PUBLIC SAFETY AND QUALITY CONCERNS. IT IS TIME POLICYMAKERS GIVE CONSTITUENTS THE FREEDOM TO WORK. Occupational licenses are government-approved requirements that individuals must gain to work in a profession. Most license approvals are contingent upon completing an educational program, passing an exam, and paying a fee.
Licensing has not always played a significant role in the American labor market. In the 1950s, fewer than five percent of U.S. workers were required to have a state- issued license to work.1-2 By 2015, however, this number had risen to nearly 30 percent.3 There are now over one thousand occupations licensed at the state level alone, with still more licensed at the federal and municipal levels.4
This number includes high-earning occupations traditionally under licensure, including lawyers, doctors, and accountants. However, it also includes low- to E R 0 medium-income occupations that pose much less of a E E physical or financial risk to the public, including interior E E VE designers, animal massage therapists, and florists. E E E E The astronomical growth in licensing has been spurred E by several factors. Proponents have argued that licensing is essential to protecting public safety and quality of services for consumers, and that it primarily affects individuals with higher incomes who should have no problem paying the exorbitant fees. But unfortunately for taxpayers, consumers, job seekers, and entrepreneurs, these arguments are not based on reality. TheFGA.org TheFGA.org
3 DISPELLING THREE BIG MYTHS ABOUT OCCUPATIONAL LICENSING Myth: All licensing is necessary to protect public safety. Proponents often argue that the dramatic growth in occupational licensing is necessary to ensure consumer safety. However, the body of available evidence does not support this argument, and instead, often points to the contrary.5
Studies, including a survey done by the Obama administration, continue to demonstrate that most occupational licensing does not improve safety or service quality for consumers.6-7 As the most restrictive form of labor market regulation, licensing should be reserved for occupations where there is demonstrated risk to customers’ safety when they are provided with poor or unqualified service.
While occupational licensing laws vary greatly across the country, there is little discernable difference in consumer safety outcomes between states. Of the over one thousand occupations that require a license in at least one state, less than sixty require a license in all fifty states.8-9 Professions including bartenders, locksmiths, farm workers, and upholsterers are licensed in fewer than 15 states. This lack of uniformity in both licensing and training requirements strongly suggests the process for requiring licensure is arbitrary and not based on rigorous analysis of the threats posed to public safety.
E E E E E Reality: Licensing has little effect on E E E public safety. ER CO T TED CCE Rather than providing protection to consumers, licensing can E actually be harmful to consumers and entrepreneurs. E Licensure reduces the number of available professionals in a given field, leading to unintended consequences: higher costs and limited access to trained professionals often cause consumers to make riskier decisions to save money, including doing a job themselves if they find it difficult to hire someone who can legally do the job.10-11
In one instance, burdensome licensing decreased the number of available electricians in an area. That same area saw a significant increase in deaths by accidental electrocution.12 Here, licensing increased costs for consumers and lowered the number of professionals. TheFGA.org TheFGA.org
4 DISPELLING THREE BIG MYTHS ABOUT OCCUPATIONAL LICENSING Without an electrician nearby or available, it is likely that more people attempted to perform electrical work by themselves or put off repairs until unfortunate accidents occurred.
Studies have shown that in certain areas, licensing requirements lowered the number of dentists available— consequently, patients were left with fewer dentists per capita and were found to have poorer dental health and higher levels of disease.13 Licensure restrictions for veterinarians similarly gave rise to fewer veterinarians, which meant that fewer animal diseases, such as rabies, were discovered and treated.14
In these industries and more, stricter licensure limited the supply of workers, diminishing public health and safety. Overly-burdensome licensure can diminish public In these safety in less apparent ways, as well. Over 60 percent of individuals will remain unemployed a year after leaving industries and prison, despite having a job being a significant factor more, stricter in how likely someone is to re-offend.15-16 Furthermore, the unemployment rate for those who spent time licensure incarcerated is estimated to be 27 percent.17 Tens of limited the thousands of licensing restrictions for those criminal records hinder these individuals from gaining meaningful supply of employment, putting them on track to re-offend— workers, threatening public safety—or enter into the cycle of diminishing government dependency. public health Legislative solutions can empower individuals to work while protecting public safety, and many states are and safety. implementing reforms. One solution requires licensing boards to list the specific, directly related criminal convictions that could lead to the denial of a license. This is something that Massachusetts and Wisconsin enacted.18-19 Furthermore, some states like Indiana and Kansas only allow licensing boards to disqualify applicants with directly related convictions that are neither sexual nor violent for five years, provided that applicants remain crime-free.20-21
Licensing boards can also offer applicants the ability to find out if their criminal record will disqualify them from licensure at any time even before applicants start the mandated education or training, which is often time consuming and costly. Arizona and Tennessee are two of the states that enacted this predetermination option, ensuring that individuals with criminal records are given the opportunity to reenter society in a meaningful way 22-23 through work. TheFGA.org 5 Myth: Licensing protects quality. Not only does licensure fail to improve safety, but it In many cases, also fails to improve quality. Research has found there licensing to be no discernable difference in the quality of floral arrangements from florists in Louisiana—the only state does not that licenses florists—and Texas.24 Data showing that simply fail to complaint rates for floral services in Louisiana were protect service similar to those of unlicensed services in Mississippi and Arkansas further confirmed this finding.25 quality – it A study that surveyed the dental health of Air Force can actually recruits found that stricter licensing did not improve reduce it. quality of dentistry—but did raise prices for consumers.26
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6 Reality: Licensing can reduce service quality. In many cases, licensing does not simply fail to protect service quality—it can actually reduce it. In one study, researchers surveyed 19 studies assessing the effect of occupational licensing on quality, and found that 12, or 63 percent, concluded that licensing had an unclear, mixed, or neutral effect on quality. Four found that licensing has a negative effect on quality.27
As William Mellor and Dick Carpenter highlight in N N-LICENSE LICENSE their book Bottleneckers: Gaming the Government S A E S A E for Power and Private Profit, studies have also shown no improvements in quality of service for licensing of clinical laboratory technicians, television repair technicians, optometrists, sanitarians, and health paraprofessionals.28-33 Licensing requirements are associated with lower numbers of real estate brokers. With fewer brokers, and in-turn less time to dedicate to each sale, houses were shown to remain on the market for longer periods of time, leading to longer wait times for moving families and reducing the quality of the home- selling experience.34
E VE EE EM E M E O ER ER OD O T E E E E EME E E E E TheFGA.org TheFGA.org
7 DISPELLING THREE BIG MYTHS ABOUT OCCUPATIONAL LICENSING Myth: Licensing primarily affects higher earners. Traditionally-licensed occupations such as doctors, OR lawyers, and accountants represent high-income, high- risk jobs. However, the increase in occupations that require licensure has caused other jobs, many of which include low- to moderate-income occupations, to require E licenses. Many licenses now apply to entry-level jobs that OR offer a path to upward mobility.35 TR From 1993 to 2012, occupational licensing laws expanded drastically across the U.S with the average state creating 31 new licenses during that period. State growth in licensing corresponded with up to a 6.7 percent decline in economic mobility, making it harder for low-income children to move up the economic ladder and achieve the American Dream.36 EE A 2017 study by the Institute for Justice that looked C T E at licensing requirements for 102 different low- and moderate-income occupations found an average requirement of $260 in fees, one exam, and approximately one year’s worth of education and training for licensure.37 Manicurists in Virginia need to pay $290 to work legally, while in Michigan, cosmetologists must pay $291 for an application, license, and exam—in addition to the cost of the state-required schooling.38 CE These fees make it harder for low-income Americans to climb the economic ladder.39 For those struggling to make ends meet, every dollar spent to start working is a B RR ER setback. TheFGA.org TheFGA.org
8 DISPELLING THREE BIG MYTHS ABOUT OCCUPATIONAL LICENSING Reality: Licensing harms low-income individuals. OR Occupational licensing serves as a barrier to entry and entrepreneurship in hundreds of professions, with low-income individuals being most susceptible to such obstacles. Fees and barriers associated with occupations E requiring licensure prevent low-income individuals from OR creating new jobs or industries, perpetuating a cycle where low-income individuals are kept out of work. TR Licensing creates a system in which those who can obtain a license are protected from outside competition, reducing the incentives for new workers to enter certain professions. This dynamic allows those who are licensed to raise their prices by about 15 percent and makes many promising work options cost-prohibitive for low- income workers.40
EE Additionally, occupational licensing damages C T E entrepreneurship and harms low-income individuals’ ability to climb the socioeconomic ladder by starting a business or testing new ideas. Businesses that could create new jobs or revolutionize an industry are never started, low-income individuals never make the money they could, and invisible costs reverberate throughout the economy.
Research by the Goldwater Institute found that states which license over 50 percent of a set of low-income CE professions have an entrepreneurship rate that is 11 percent lower than the national average—while states B RR ER that license less than a third of these low-income professions had an entrepreneurship rate that was 11 percent higher than the national average.41 Additionally, research from the Institute for Justice finds that about half of the 102 studied licensed occupations offers the possibility of new business creation.42 TheFGA.org TheFGA.org
9 DISPELLING THREE BIG MYTHS ABOUT OCCUPATIONAL LICENSING Conclusion Policymakers cannot allow licensing reforms to be hindered by undue public safety and quality concerns. While licensure may be necessary among occupations Rather than where there is demonstrated risk to the customers’ health or safety, the body of existing research on the subject maintaining is evidence that licensing primarily affects low-income barriers to individuals and does not promote public safety nor these three improve quality in most occupations. universal Lawmakers must continue to implement proven reforms that address public safety while empowering goals, it is time individuals with the dignity and power of work. Reforming policymakers occupational licensing is the first step to encouraging gave their job creation, promoting economic opportunity, and reducing government dependency. Rather than constituents maintaining barriers to these three universal goals, it is the freedom to time policymakers gave their constituents the freedom to work. work.
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10 REFERENCES 1. Morris Kleiner, “Reforming Occupational Licensing Policies,” Brookings Institution (2015), https://www.brookings.edu/wp- content/uploads/2016/06/THP_KleinerDiscPaper_final.pdf. 2. The Obama White House, “Occupational Licensing: a Framework for Policymakers,” Department of the Treasury Office of Economic Policy, Council of Economic Advisers, Department of Labor (2015),https://obamawhitehouse.archives.gov/ sites/default/files/docs/licensing_report_final_nonembargo.pdf. 3. Brad Hershbein, David Boddy, Melissa Kearney, “Nearly 30 Percent of Workers in U.S. Need a License to Perform Their Job: It is Time to Examine Occupational Licensing Practices,” Brookings Institute (2015), https://www.brookings.edu/blog/ up-front/2015/01/27/nearly-30-percent-of-workers-in-the-u-s-need-a-license-to-perform-their-job-it-is-time-to-examine- occupational-licensing-practices/. 4. Adam Summers, “Occupational Licensing: Ranking the States and Exploring Alternatives,” Reason Foundation (2007), http://reason.org/files/762c8fe96431b6fa5e27ca64eaa1818b.pdf. 5. Morris Kleiner, “Reforming Occupational Licensing Policies,” Brookings Institution (2015), https://www.brookings.edu/wp- content/uploads/2016/06/THP_KleinerDiscPaper_final.pdf. 6. Grace Knofczynski, “Do Occupational Licenses Keep Consumers Safer?” The Regulatory Review (2015), http://www. regblog.org/2015/08/13/knofczynski-occupational-licenses/. 7. The Obama White House, “Occupational Licensing: a Framework for Policymakers,” Department of the Treasury Office of Economic Policy, Council of Economic Advisers, Department of Labor (2015),https://obamawhitehouse.archives.gov/ sites/default/files/docs/licensing_report_final_nonembargo.pdf. 8. Grace Knofczynski, “Do Occupational Licenses Keep Consumers Safer?” The Regulatory Review (2015), http://www. regblog.org/2015/08/13/knofczynski-occupational-licenses/. 9. Dick Carpenter, Lisa Knepper, Kyle Sweetland, Jennifer McDonald, “License to Work: A National Study of Burdens from Occupational Licensing, 2nd Edition,” Institute for Justice (2017), http://ij.org/wp-content/themes/ijorg/images/ltw2/ License_to_Work_2nd_Edition.pdf. 10. Sidney Carroll, Robert Gaston, “Occupational Licensing and Quality of Service: An Overview,” Law and Human Behavior (1983). 11. Morris Kleiner, “States of Occupational Regulation: Analysis of Case Studies,” W. E. Upjohn Institute for Employment Research (2013), http://www.independent.org/publications/tir/article.asp?id=1134 12. Sidney Carroll, Robert Gaston, “Occupational Licensing and Quality of Service: An Overview,” Law and Human Behavior (1983), http://www.jstor.org/stable/1393536. 13. Sidney Carroll, Robert Gaston, “Barriers to Occupational Licensing of Veterinarians and the Incidence of Animal Disease,” Agricultural Economic Review (1978). 14. Sidney Carroll, Robert Gaston, “Barriers to Occupational Licensing of Veterinarians and the Incidence of Animal Disease,” Agricultural Economic Review (1978). 15. “Reentry and Employment for the Formerly Incarcerated and the Role of American Trades Unions,” National Employment Law Project (2016), https://www.nelp.org/publication/reentry-and-employment-for-the-formerly-incarcerated-and-the- role-of-american-trades-unions/. 16. Stephen Slivinski, “Turning Shackles Into Bootstraps: Why Occupational Licensing Reform Is the Missing Piece of Criminal Justice Reform,” Center for the Study of Economic Liberty at Arizona State University (2016), https://research.wpcarey. asu.edu/economic-liberty/wp-content/uploads/2016/11/CSEL-Policy-Report-2016-01-Turning-Shackles-into-Bootstraps. pdf. 17. Lucius Couloute, Daniel Kopf, “Out of Prison & Out of Work: Unemployment Among Formerly Incarerated People,” Prison Policy Institute (2018), https://www.prisonpolicy.org/reports/outofwork.html. 18. Wisconsin Assembly Bill 829, 2017-2018 Wisconsin Legislature (2018), https://docs.legis.wisconsin.gov/2017/related/ acts/278.pdf. 19. Massachusetts Senate Bill 2371, The 190th General Court of the Commonwealth of Massachusetts (2018), https:// malegislature.gov/Bills/190/S2371. 20. Kansas House Bill 2386, Kansas State Legislature (2018) https://legiscan.com/KS/text/HB2386/id/1789836/Kansas- 2017-HB2386-Enrolled.pdf. 21. Indiana House Bill 1245, General Assembly (2018), http://iga.in.gov/legislative/2018/bills/house/1245#document- fcfb695e. 22. Tennessee Senate Bill 2465, Tennessee General Assembly (2018), https://legiscan.com/TN/text/SB2465/2017 23. Arizona Senate Bill 1436, Arizona’s Fifty-Third Legislature (2018), https://www.azleg.gov/legtext/53leg/2r/bills/sb1436p. pdf. 24. Dick Carpenter, “Testing the Utility of Licensing: Evidence from a Field Experiment on Occupational Regulation,” Journal of Applied Business and Economics (2012), http://www.na-businesspress.com/JABE/CarpenterDM_Web13_2_.pdf. 25. Dick Carpenter, “Blooming Nonsense: Do Claims About the Consumer Benefit of Licensure Withstand Empirical Scrutiny?,” Regulation (2011), https://object.cato.org/sites/cato.org/files/serials/files/regulation/2011/4/regv34n1-8. pdf. 26. Morris Kleiner, Robert Kudrle, “Does Regulation Affect Economic Outcomes? The Case of Dentistry,” Journal of Law and Economics (2000), http://wwwhhh.oit.umn.edu/people/mkleiner/pdf/dentistry.pdf. TheFGA.org TheFGA.org
11 DISPELLING THREE BIG MYTHS ABOUT OCCUPATIONAL LICENSING 27. Patrick Laughlin, Matthew D. Mitchell, Anne Philpot, “The Effects of Occupational Licensure on Competition, Consumers, and the Workforce,” The Mercatus Center (2017), https://www.mercatus.org/publications/effects-occupational- licensure-competition-consumers-and-workforce. 28. William Mellor, Dick Carpenter, Bottleneckers: Gaming the Government for Power and Private Profit, Encounter Books (2016), https://www.encounterbooks.com/books/bottleneckers-gaming-the-government-for-power-and-private-profit/. 29. Kathryn Healey, “The Effect of Licensure on Clinical Laboratory Effectiveness: With Special Reference to Its Effect on Quality of Output,” University of California, Los Angeles (1974). 30. John Phelan, Economic Report on the Regulation of the Television Repair Industry in Louisiana and California, U.S. Government Printing Office (1974). 31. Sidney L. Carroll, Robert J. Gaston, “Occupational Licensing and Quality of Service: An Overview,” Law and Human Behavior (1983). 32. Ibid. 33. William White, Thomas Marmor, “New Occupations, Old Demands: The Public Regulation of Paraprofessionals,” Journal of Policy Analysis and Management, (1982). 34. Sidney L. Carroll, Robert J. Gaston, “Occupational Licensing and Quality of Service: An Overview,” Law and Human Behavior (1983). 35. The Obama White House, “Occupational Licensing: a Framework for Policymakers,” Department of the Treasury Office of Economic Policy, Council of Economic Advisers, Department of Labor (2015),https://obamawhitehouse.archives.gov/ sites/default/files/docs/licensing_report_final_nonembargo.pdf. 36. Edward Timmons, Brian Meehan, Andrew Meehan, John Hazenstab, “Too Much License? A Closer Look at Occupational Licensing and Economic Mobility,” The Archbridge Institute (2017), https://www.archbridgeinstitute.org/wp-content/ uploads/2018/04/Too-Much-License-1.pdf. 37. Dick M. Carpenter II, Lisa Knepper, Angela C. Erickson, and John K. Ross, “License to Work: A National Study of Burdens from Occupational Licensing,” Institute for Justice (2012), http://ij.org/wp-content/uploads/2015/04/licensetowork1. pdf 38. Board of Barbers and Cosmetology, “Regulations,” Virginia Department of Professional and Occupational Regulation (2017), Bureau of Professional Licensing, “Michigan Cosmetology Licensing Guide,” Michigan Department of Licensing and Regulatory Affairs (2015). 39. Jenni Bergal, “A License to Braid Hair? Critics Say State Licensing Rules Have Gone Too Far,” The Pew Charitable Trusts (2015), https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2015/1/30/a-license-to-braid-hair-critics- say-state-licensing-rules-have-gone-too-far. 40. Maury Gittleman, Morris Kleiner, and Mark A. Klee, “Analyzing the Labor Market Outcomes of Occupational Licensing,” Minneapolis Federal Reserve (2014), https://www.minneapolisfed.org/research/staff-reports/analyzing-the-labor- market-outcomes-of-occupational-licensing 41. Stephen Slivinski, “Boots Tangled in Red Tape: How State Occupational Licensing Hinders Low-Income Entrepreneurship,” Goldwater Institute (2015), https://goldwater-media.s3.amazonaws.com/cms_page_media/2015/4/15/ OccLicensingKauffman.pdf 42. Dick Carpenter, Lisa Knepper, Kyle Sweetland, Jennifer McDonald, “License to Work: A National Study of Burdens from Occupational Licensing, 2nd Edition,” Institute for Justice (2017), http://ij.org/wp-content/themes/ijorg/images/ltw2/ License_to_Work_2nd_Edition.pdf TheFGA.org TheFGA.org
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