California’s Two Strikes Against Economic Opportunity

By Ben Wilterdink — August 27, 2018

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This article was originally published on Medium. 

California has earned its place as first in the nation in two oddly related categories: poverty and spending on welfare programs. Indeed, often thought of as a state that is uniquely caring, especially for the poor, the state tops the charts in its spending on welfare, paying out nearly $103 billion annually, more than the number 2 (New York) and number 3 (Texas) states combined. Despite the generosity of its taxpayers, California is also the state with the highest proportion of citizens living below the poverty line — with one in every four Californians living below that threshold. Against this backdrop, it was deeply disappointing to see powerful entrenched interests triumph in their defeat of two bills that would have broadened economic opportunity and challenged the status-quo policies that exclude low- and middle-income Californians from the chance to climb the income ladder.

One key barrier hindering Californians’ ability to pursue financial security is the state’s staggeringly high housing costs. California faces a housing crisis and has for some time — with demand far outpacing supply in a state already containing 10 out of the 11 most expensive metropolitan areas in the country and a median home price of $539,000. Despite high demand and a growing economy, housing developers in the Golden State face a labyrinth of laws and regulations that tremendously constrain how much, what type, and where new development can take place. Typically taking the form of local zoning or land-use restrictions, these laws severely restrict the building of new housing, ensuring that housing demand perpetually outpaces housing supply — a windfall for current property owners.

To alleviate this artificial housing shortage, lawmakers, led by State Senator Scott Wiener, introduced SB 827, which would have allowed for higher density housing to be built near public transportation — preempting some local regulations. The bill would have allowed more new housing to meet demand, with one analysis arguing that, had SB 827 been adopted in 2012, rent in 2018 would be 5.8 percent lower in San Francisco and 4.2 percent lower in Los Angeles County — a savings of $266 per month and $124 per month respectively. Although SB 827 enjoyed bipartisan support, the bill was ultimately defeated, with opposition primarily from current homeowners, deemed NIMBYs (not in my back yard), who were eager to maintain the government granted privilege of artificially high property values at the expense of everyone else.

But SB 827 wasn’t the only bill to succumb to the pressure of entrenched interests in the 2018 Legislative Session. For decades, an increasing number of occupations have become subject to occupational licensing laws. These laws create a barrier for anyone looking to enter a profession by requiring prospective workers to complete a variety of mandatory entrance requirements before they are allowed to begin working. These requirements vary by state and profession, but typically include entrance examinations, substantial fees, and often lengthy and costly educational requirements. These requirements are frequently enacted under intense pressure from incumbent market participants who are usually “grandfathered” into the new system — exempting themselves from these requirements while creating new barriers to entry for future potential competitors.

Nationwide, occupational licensing requirements have greatly proliferated in recent years. In the 1950s, about one in every twenty occupations required a license to legally work; today the number is about one in four. Between 1993 and 2012, California alone added occupational licensing requirements to 49 separate occupations, such as child care workers, makeup artists, and travel agents. Unsurprisingly, raising the barriers to entry for such a broad set of occupations has helped to both increase income inequality and decrease economic mobility (a measure of how much a person earns compared to what their parent(s) earned at the same age). A wide range of researchers and public policy scholars from across the political spectrum, including those in the Obama Administration, have concluded that a significant portion of occupational licensing requirements are unnecessary to ensure public safety and represent little more than a legal mechanism protecting existing market actors from competition.

To mitigate these unnecessary and costly licensing requirements, California State Senator Mike Morrell introduced SB 999 — a bill that would remove the state’s licensing requirements to shampoo, arrange, dress, curl, wave, cleanse, and beautify hair. Such actions pose little danger to consumers, but as part of the state’s licensing requirement, anyone wishing to sell these services must get a license from the state and pay a $125 fee. But the license will only be granted after completing 1,500 hours of education at a state-approved barbering school — costing about a year (for part-time students) in addition to hefty tuition fees. The bill easily passed the Senate with overwhelmingly bipartisan support but was ultimately defeated in the Assembly.

Uprooting the policies that advantage some groups over others is never easy, but ensuring an inclusive economy requires a truly level playing field. For the time being, it is clear that entrenched interests still hold enough sway over the legislature to prioritize their own interests over the general interest. With so many people struggling economically, it is now up to Californians to hold lawmakers accountable and set their priorities straight.

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