Free-market advocates have long criticized excessive occupational licensing as a drag on the U.S. labor market and an impediment to growth.
The Obama administration, it seems, is finally listening.
The White House Report
In a major report published in July, the White House acknowledged the growing costs of occupational licensing and called on state leaders to enact reforms:
The evidence in this report suggests that licensing restricts mobility across States, increases the cost of goods and services to consumers, and reduces access to jobs in licensed occupations.… States and other jurisdictions should review current licensing practices with an aim toward rationalizing these regulations and lowering barriers to employment.
In certain skilled or specialized occupations, such as law and medicine, licensing requirements play an important role in protecting the public from incompetent or illegitimate practitioners. The current licensing regime, however, far exceeds this purpose.
Today, one in three jobs requires some type of state license—up from less than 5 percent in the early 1950s. Many of these licensing regulations defy common sense. To name just a few of the more egregious examples, florists, interior designers, hearing-aid fitters, and hair braiders are licensed occupations in one or more U.S. states. In Tennessee, to be a qualified “shampooer” (someone who shampoos and rinses customers’ hair), a person must complete 70 days of training, pay a $140 fee, and pass two exams.
The Economic Costs
Licensing requirements have proliferated because licensing allows existing practitioners to limit competition by raising barriers to entry for job seekers. The reduced labor supply in turn drives up wages for the remaining practitioners.
Licensing has essentially evolved into a form of protectionism in which professional associations, acting like labor cartels, lobby state governments for additional licensing requirements to artificially inflate their own pay. Since licensing boards are primarily funded through licensing fees, legislators debating a licensing proposal do not need to worry about finding sufficient funding.
Regrettably, while license holders undoubtedly benefit from such a scheme, the rest of society suffers. The higher wages enjoyed by license holders are passed onto consumers in the form of higher prices.
Moreover, excessive licensing limits job opportunities for unemployed workers. Licensed practices become prohibitively expensive to pursue, forcing them into occupations that have fewer openings and are less suited to their respective skill sets. As the supply of workers increases, wages in unlicensed professions tend to fall. All of these outcomes reduce efficiency in the labor market, in turn dampening economic growth and inhibiting innovation.
Largely Unrelated to Public Safety
Furthermore, evidence demonstrates that increased licensing requirements do little to promote safety or improve quality for consumers. Only two of 12 relevant studies reviewed in the White House study found a link between stricter licensing and improved safety or quality.
In short, excessive licensing requirements benefit an exclusive few while imposing serious economic costs on the rest of society. State lawmakers should review the licensing requirements in their jurisdictions, scaling back those that are overly burdensome and eliminating those that are unrelated to public safety.