Nonprofit report finds occupational licensing is burdensome to workers, consumers

A new report called License to Work, published in November by the nonprofit Institute for Justice (IJ), has found that occupational licensing is responsible for depriving millions of Americans of opportunities at career advancement and unnecessarily driving up the price of goods and services.

Occupational licensing is a form of government regulation that requires a license for workers and entrepreneurs to practice certain occupations. IJ’s report, which is now in its third edition, attempts to map out the prevalence of the practice across the country. Its analysis also seeks to determine how licensing regulations impact the lives of ordinary Americans, particularly low-income Americans who already struggle to find work and open small businesses.

One of the report’s more noteworthy findings was that occupational licensing is extremely burdensome to workers who must spend a great deal of their time and energy working on obtaining a license. On average, it takes a worker approximately 362 days to acquire the necessary education and experience. Despite this significant time investment, some low-risk occupations examined in the study were found to require far more education and experience than others. 71 occupations require more training than an entry-level emergency medical technician (EMT), even though an EMT consistently works in life-and-death situations.

Getting an occupational license is also expensive. According to the report, licensing fees cost workers an average of $295, not including hidden costs like school tuition. The average cost of education for a cosmetology license is $16,000, almost double the price of in-state tuition and fees for a four-year degree at a public university.

Occupational licensing also creates unnecessary barriers to entry, which can be detrimental to workforce participation and disproportionally harm immigrants, low-income earners and minorities. In a paper published in the Journal of Law and Economics at the University of Chicago, researchers found that immigrants are 30 to 35 percent less likely than native-born Americans to be licensed. A lack of English proficiency is cited as a significant factor. In a separate paper published in the International Symposium of the Regulation of Occupations, researchers found licensing requirements reduce labor supply by 17 to 27 percent, with African Americans and women being disproportionally impacted. Research conducted by the Mercatus Center at George Mason University has also found entry regulations cause greater income inequality because “entrepreneurs at the bottom of the income distribution may have relatively greater difficulty surmounting costly barriers to entry.”

The IJ report also found that occupational licensing harms consumers. What was first intended to improve the quality of goods and services for consumers by preventing dangerously incompetent practitioners from working in a few unique trades has slowly evolved to include virtually every occupation. As recently as the 1950s, just one in 20 Americans needed a government-approved license for their occupation. However, by 2018, that number had climbed to one in four Americans, or roughly 25 percent of the entire workforce. Many of these occupations are far removed from the types of job responsibilities that one might expect to necessitate a license, such as prescribing medications.

Of the 102 low-income occupations studied by IJ researchers, 88 percent were unlicensed by at least one state, with many others unlicensed by several states. In fact, 22 occupations were licensed by fewer than 10 states. This pattern suggests that these jobs can be done safely without a license but are still licensed by some states anyway.

At the very least, states should avoid further regulating existing licenses. Little evidence suggests that these measures contribute to higher quality care. One study on the dental health of Air Force personnel found that stricter licensing didn’t improve health outcomes. In fact, stricter licensing raised prices for consumers. Studies of other occupations have reached similar conclusions.

Occupational licensing also negatively impacts the economy on aggregate. A previous 2018 IJ study found that that occupational licensing may cost the U.S. economy anywhere from 1.8 to 1.9 million jobs annually. Conservative estimates put the value of this lost economic output at between $6.2-7.1 billion. When including misallocated resources, these estimates jump to between $183.9-197.3 billion. Licensing creates restrictions on competition that drive up prices and consequently reduce economic activity in other areas. The result is a drain on the economy. Similar findings have been noted at the state and local level, where occupational licensing has been linked to reduced tax revenue.

These challenges represent significant problems with occupational licensing as it exists today. States can take several steps to improve the situation. First, states can repeal licenses for occupations in which licensing provides little to no benefit for workers and consumers. They can also avoid establishing new ones. Licenses that are not universally required or are for low-risk occupations should be prioritized for removal. Second, states can replace licensing requirements with less burdensome alternatives such as “inspections, registration and certification.” These alternatives have been shown to be less costly and labor-intensive to workers and still provide meaningful quality control. Third, for those occupational licenses that remain, states can streamline the application process so that the burden imposed on workers is no greater than what’s needed to protect public health and safety. This may consist of reducing the number of hours of schooling needed to obtain a license and cutting the amount of fees that job seekers must pay.

Each of these steps would go a long way toward reforming occupational licensing. If states act, workers will face fewer barriers to practicing their chosen occupation and consumers will be able to enjoy the products and services that they wish to purchase at reasonable prices.