Over the past 50 years there has been a gradual regulatory encroachment. This has had the effect of stifling competition, discouraging entrepreneurial endeavors, and keeping many people out of the labor market. It might sound like the expansion of federal agencies such as the EPA or NLRB. However, these detrimental policies have been a mostly state and local agenda, and shockingly have been identified as one of the current White House administration’s priorities to tackle: occupational licensing.
Only a half a century ago, one in twenty workers required a license to perform their jobs. Today, in the United States, it’s approximately one in four. There has been a significant cost to this expansion of licensure over the years.
This explosion of licensure over the last several decades is not just highly technical professions such as medical doctors and attorneys, but includes many lower to medium income jobs, which do not pose the same threat to public health or safety. Instead, the licensing of hair dressers, preschool teachers, sign language interpreters, and funeral attendants (just to name a handful), represent a run-away trend for professions to regulate themselves.
The reason for this is quite simple. Licensing allows an industry to depress the number of professionals in their field. Costly fees, continuing education, and exams, serve as barriers to entry. As a result, fewer people will pursue their trade or professional passion. Fewer persons supplying a service, while maintaining the same demand, will put upward pressure on prices. This isn’t just theoretical economics, several studies demonstrate an average of 15 percent higher income earnings in professions that are licensed compared to comparable professions that are not. Though that might be good for those keeping out potential competition, it means an increase in services for the consumer and a less opportunity for others seeking work. In fact, according to this same study, licensing across the country is responsible for 2.85 million fewer jobs and $203 billion to consumers.
The 2015 White House report, the U.S Bureau of Labor, and the Goldwater Institute confirm this analysis. These reports determined with compelling evidence that those most negatively impacted by licensing requirements are the most vulnerable and disadvantaged. Immigrants, individuals with criminal records, minorities, low-income persons, less-educated persons, new young workers, and older workers trying to reenter the job market are all disproportionately affected by licensing. Military families, as well are included in this population because of their propensity to move across state lines so often. Because licensure requirements run the gamete across states, many of the same professions have very different requirements. Despite the relatively equal skills required to do a particular job, the regulatory obligations vary vastly and with little ostensible reason.
Arizona is considered one of the worst states for burdensome and extensive licensure regulations. According to a study done by the Institute for Justice, “License to Work,” Arizona licenses 64 out of the 102 moderate-income occupations they studied. Many of these licenses require more training than the national average – such as manicurists with 140 days compared to the 87 nationally, mobile home installers who require 2 years of education compared to just seven months nationally. Under the Ducey administration, some effort has been made to reduce the scope of Arizona’s licensure. This past session, the Governor’s office successfully pushed HB2613 which eliminates the licenses for food-packing contractors, geologists, driving school teachers, yoga instructors, assayers, and people who do cremations. Originally in the bill but amended out, was the abolition of licensure for landscape architects.
Dismantling entrenched licensure systems has proved politically exceedingly difficult, with more losses than wins across the country. Trade organizations have powerful lobbyists who are motivated, organized, and well-funded. However, the tide of the conversation seems to be shifting as several successful court cases have demonstrated the unconstitutionality of state licensing boards exercising excessive authority and anticompetitive practices. And as the data continues to prove over-licensing dampens an industry’s job growth, discourages entrepreneurship, and harms consumers more legislatures will be forced to think twice about protecting this insidious form of cronyism.