Occupational Licensure Reform

Excessive government regulation stifling free-market participation and innovation is a danger to the U.S. economy. While there is a pandemic of government interference in this country towards small businesses that harms the ability of our economy to grow and flourish, the buck doesn’t quite stop there. Many state governments have passed burdensome occupational licensure laws, requiring individuals to complete certain tasks, take certain courses, and pay certain fees in order to be able to legally work in a certain sector. These laws keep people from being employed. By no means are all of these regulations and licensure requirements overbearing. It is essential that we have these for certain professions. For example, I want my surgeon to have attended medical school or passed her board exams, and I don’t want my airline pilot to have never flown a plane before. In certain highly-skilled, high-capacity jobs, there is a need for government regulation, but in others, that is not the case.

A report by the Executive Office of the President presents some astonishing statistics regarding these requirements. More than one out of every four U.S. workers now requires some sort of license to do their job, this number having risen five-fold since the 1950s. One out of every four workers is not in a high-skilled job. The Institute for Justice compiled a comprehensive report on occupational licensure back in 2012, and the results are overwhelming.  Every single state in this country has occupational licensure requirements for becoming a cosmetologist, and on average, they must pay fees of $142, have 372 days of training and pass two exams. Most of all, licensure requirements lack consistency across states. In New York and Massachusetts, only 1,000 hours of training are required to become a cosmetologist, whereas in Oregon, 2,300 hours are necessary. This seems quite absurd. When considering the goal of occupational licensure, one may argue that it is to protect the consumer. Collin Roth and Will Flanders from the Wisconsin Institute for Law & Liberty beg the question, “Does anyone really think they’re safer, or getting a better haircut in Portland, Oregon over Manhattan or Boston? Of course not.” The difference in occupational licensure requirements between states also harms the freedom of mobility, which reduces the efficient operation of the free market.

Take a look at another example, become an interior designer. On average, you must spend $364 in fees and pass an exam, but only after you have completed 2,190 days of training -- that’s 6 years! Now, I want the interior of my house to be as well designed and decorated as the next person, but requiring such onerous requirements to be able to do so just seems inhumane.

The goal of most government intervention is to either protect the provider or to protect the consumer. By ensuring that my surgeon is licensed, the government protects against an inexperienced physician that could potentially harm a life. However, government regulation of cosmetology prevents whether or not someone gets a bad haircut. That seems to be an excessive amount of intervention for consumer protection. In many cases, it is. Dr. Steven Rhoads, Politics Professor Emeritus from the University of Virginia, wrote an op-ed about his personal experience with occupational licensing. Rhoads explained that he had a personal trainer with whom he worked to recover from a recent surgery. In addition to personal training, the trainer did hands on work that resulted in, what Rhoads describes “a dramatic reduction in pain.” Despite how effective her services were, she was later informed that because she lacked the proper license, she could no longer perform hands-on work. Even though she has a master’s degree in exercise physiology and twenty years’ experience, in order for her to have the appropriate license to complete the work that Rhoads desired, she would have to pay $12,000 and take 750 hours of instruction at a massage-therapy school. The market and the consumers demand her skills and expertise, yet the government won’t let her do so.

Looking at the other side of things, some regulations are there to protect the producer. Government sometimes intervenes to protect the producer if their goal is preventing a market failure. However, when such intervention promotes market inefficiency, it is flawed and that intervention ought not to be taken. Unfortunately, in many cases, the existing licensure requirements only serve to squeeze other potential providers out of the market. For example, until 2010, if you wanted to become a florist in Louisiana, you had to take a subjective exam that was given by other already licensed florists, in addition to mandatory fees and education time. These examiners had a vested interest in keeping the number of people with licenses very low so they could retain as much market power as possible for themselves. This not only hurt individuals who wanted to become florists, but also hurt the consumers who would not be able to benefit from the lowest possible prevailing market price.

As mentioned earlier, there are some occupations where formal regulations are needed and will significantly benefit the consumer. However, in other cases, there is a consumer regulation that is more than sufficient. If I don’t like the service I received at a restaurant, I vote with my wallet meaning that I don’t return to that restaurant and may signal to others my perception of the value by posting on Yelp about my bad experience. Over time, if the service doesn’t improve, society-level regulation comprised of enough individuals will force that restaurant to change their staff or risk going out of business. Allowing more and more competition will further allow self-regulation in the market. When provided with a sub-par product or service, consumers have the mobility within the market to go to another provider. When the competition is limited, consumers ability to self-select towards a different provider is limited. In certain industries, government licensure requirements drive costs up, limits the ability of the unemployed to work, and decreases consumer choice and utility.

Occupational licensure requirements also disproportionately affects minorities. The Goldwater Institute finds that Hispanics have the highest rate of low-income entrepreneurship among any ethnic group in the country, with their share of low-income entrepreneurs being more than 2.5 times the share of Hispanics in the general population. Essentially what this means is that we have an ethnic minority, Hispanics, who are disproportionately harmed by the these regulations, as they are the most apt to open small businesses. They conclude that any policy that dampens employment opportunities for the Hispanic population will be quite significant, more so than any other ethnic group.

Bipartisan support exists for occupational licensure reform. Polar opposite groups from the Obama Administration to the House Freedom Caucus have given their blessing for occupational licensure reform. Trump and the Republican controlled Congress have not achieved a big “win” thus far. They have been unable to pass tax reform or comprehensive health care reform. As a result, to get the big “win” that they need to show their constituents they are looking out for them, they ought to champion occupational licensure reform. For a party that champions the idea of small government and free markets, this is a clear step forward that will benefit the economy.

Occupational licensing is a clear barrier to entry, one of the reasons for economic inefficiency in the free market. It reduces growth and economic opportunity. If we as a society want to reap the benefits of the free market, occupational licensure reform is a first step we can take to achieve that goal.