Spring is here, and the labor market is facing unique challenges. Job openings are still near all-time highs as companies struggle to fill open positions. At the same time, many workers have given up looking for work entirely.
Finding skilled workers is particularly challenging for many businesses. Unnecessary red tape, such as occupational licensing laws, bears much of the blame for keeping individuals from finding work. Occupational licensing requires individuals to attain minimum levels of education and training and apply to a licensing board before they are allowed to practice. The application process requires both time and money, making it more difficult to enter a profession. Today, about 20% of workers are required to obtain a license before they can legally work.
And licensing has significant drawbacks. The requirements, which have a stated purpose to improve quality, also limit entry. Economists estimate that licensing reduces the number of professionals by up to 29%. In turn, consumers are forced to pay higher prices.
Low-income individuals and minorities are particularly hit hard. Minorities are much less likely to obtain a license than white Americans. And low-income individuals of every race often lack the means to forgo regular income to meet the required education and training. Research has found that licensing requirements for professions without traditional, four-year degrees lower entrepreneurship and increase income inequality.
Licensing isn’t just costly; it doesn’t even seem to serve its intended purpose of increasing work quality. A report from the Obama administration in 2015 summarized a wide range of research, finding no evidence that licensing increases the quality of services for consumers.
Some argue that consumers benefit from knowing that a professional is licensed. However, when given the option, consumers don’t seem to care. For example, across online platforms for home improvement services, a professional’s licensing status doesn’t affect consumers’ demand or their ratings. Instead, they rely on more direct measures of quality, such as consumer reviews.
If consumers don’t care about occupational licensing, then who does? According to a new report from the Institute for Justice, the professional associations, those who benefit from higher salaries, do. In a survey of the 15 states with annual sunrise review reports, researchers found that over 83% of licensing laws were sought by professionals, not the public. Consumer advocacy groups supported just 4% of proposed licensing laws, despite the laws being designed to protect them.
Sunrise review commissions have their doubts that occupational licensing can be effective. In a majority of cases, they advised against new professional regulations. And when they found regulations were necessary, they often recommended against licensing in favor of less stringent regulations.
Occupational licensing is often inappropriate for today’s rapidly evolving economy. Licensed professions are more difficult to enter, making them less dynamic. Want to start a business in a profession that requires an occupational license? Be prepared to take time off to meet the education and training requirements. Already have a license and want to move to a new state to continue to work? Hope you have the time to reapply and enjoy retaking exams or replicating training.
But thankfully, states have several options for reform. The first is to allow alternative pathways to meet training and education requirements. Other states can look to Alabama, Idaho, Iowa, and North Carolina. All four states allow aspiring professionals in many trades to use paid apprenticeships with licensed professionals to meet the training requirements. People can work and earn a living while preparing for licensure, easing one of the largest burdens of licensing.
In other cases, it would be appropriate to remove licensing requirements altogether. Today, we use licensing to regulate professions that pose no risk of physical danger to consumers. States should consider removing licensing laws and replacing them with less costly regulations, such as certification or registration. Alternatively, we could use more targeted regulations, such as facility inspections to protect against specific risks.
To prevent legislatures from passing unnecessary licensing laws, states should consider creating an independent and fully resourced sunrise review committee to advise the legislature. Utah was the latest state to pass this reform. Existing sunrise commissions often recommend against licensure, serving as an important check on professional interests.
In today’s difficult labor market, it’s important that we remove unnecessary red tape. State legislatures may have good intentions when they pass licensing laws, but they make it more difficult for people to enter professions or start businesses. State governments shouldn’t be making matters worse with unnecessary barriers to opportunity.
Conor Norris is assistant director and Edward Timmons is director of the Knee Center for the Study of Occupational Regulation at West Virginia University. Timmons is also a senior research fellow with the Archbridge Institute.