The Victims of Occupational Licensing

As the issues of poverty, inequality, and economic mobility have gained traction in the American political debate, one central issue has been largely ignored: occupational licensing.

It’s well-known that the best way to help the disadvantaged is to make it easier to find a good-paying job. Fewer than 3 percent of people with a full-time, year-round job live in poverty. Yet broken licensing regimes make it harder to earn an honest living.

Occupational licensing laws, which require workers to obtain a government permit before legally practicing, has increased five-fold in the U.S. since the 1950s and now encompasses about 30 percent of our working population.

Licensing regimes have a profound impact on the American labor force and on the economic opportunities available to workers. For example, the number of licensed workers is far higher than the number of workers who earn the minimum wage or who belong to a union.

Though occupational licensing began centuries ago as a way to regulate entry into jobs in medicine and law, its scope has grown substantially over the last several decades. Today, more than 1,000 occupations are licensed in at least one state.

Last year, the Institute of Justice examined licensing requirements for 102 low- and moderate-income occupations across all 50 states — jobs like athletic trainer, barber, commercial fisherman, auctioneer, and florist, to name a few. The report found that, on average, job seekers were required to pay $267 in fees, pass one exam, and complete nearly one year of education in order to obtain a license.

Interestingly, the vast majority of these occupations are practiced in at least one state without the need for a government license and without evidence of widespread harm. In fact, studies have found that occupational licensure generally does not improve the quality of services, and in some cases it seems to make the quality of service worse.

While licensing provides few, in any, benefits to consumers, the costs of licensing are highest for disadvantaged groups that already face serious labor market challenges.

A $267 licensing fee may not be an obstacle to a high-income professional, but it represents the cost of a week’s groceries for many low-income families struggling to make ends meet.

Those with criminal records are particularly targeted by licensing laws. As many as 30,000 state licensing rules ban those with criminal records from entering certain lines of work. In Nebraska, for instance, a person with a misdemeanor or felony is permanently banned from being a licensed massage therapist.

These restrictions are counter-productive since research has shown that the inability to find a job is the best predictor of recidivism. A study estimated that from 1997 and 2007, the states with the heaviest occupational licensing burdens saw an average increase in recidivism of over 9 percent, while states that with the lowest burdens saw recidivism decline by nearly 2.5 percent.

Research has also shown that state licensing policies affect entrepreneurship among low-income people. According to one study, states that license more than 50 percent of the 102 occupations identified by the Institute for Justice had an average entrepreneurship rate that was 11 percent lower than the average for all states, and the states that licensed less than a third had an average entrepreneurship rate that was about 11 percent higher than average. By squashing entrepreneurial activity, licensing laws dampen one of the leading drivers of economic mobility and job creation in the U.S.

The victims of excessive occupational licensing often wield little political power and their plight rarely makes the headlines. Yet these excessive regulations push many occupational choices out of reach for millions of Americans, depriving them of economic opportunity. It’s time for policymakers to do something about it.

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