Research & Commentary: Occupational Licensing
Government regulation of occupations comes in the form of registration, certification permits, and licensure. A license gives an individual a “right to practice” legally. Occupational licensing has grown dramatically in the past 60 years. In 1950, one in twenty U.S. workers needed the government’s permission to pursue their chosen occupation. Today, that figure is almost one in three.
Proponents of increased licensing argue licensure protects public health and safety while improving the quality of services. If service providers are not required to get licenses, the public will have low-quality, unsafe services, according to some legislators.
Researchers who have studied the issue disagree. Carolyn Cox and Susan Foster find the costs of occupational licensing likely outweigh any presumed benefits. Occupational licensing increases the cost of providing professional services, and the price to consumers increases as a result. A report by the FTC’s Bureau of Economics found the average price for certain eye care services was 33 percent higher in places with licensure restrictions compared to those without. Thus licensing hurts consumers instead of protecting them. Jack McHugh of the Mackinac Center for Public Policy states, “The goal [of advocates] is not to protect the public, but instead to raise barriers to new competitors who might cut prices and lower profits.”
There is little evidence that licensing increases service quality. The American Society of Interior Design, for example, has fought for 30 years to increase regulation in the industry. They claim unlicensed designers present a threat to consumer health and safety, yet have produced no evidence of it. Their fight has allowed the industry to reap the financial benefits of reduced competition and a government-protected occupation.
These regulations disproportionately harm the poor. With less work experience and fewer employment opportunities, the poor are unable to break into entry-level positions or businesses requiring little start-up capital because licensing laws exclude them, according to Adam Summers of the Reason Foundation. On average, low- and medium-income jobseekers in licensed professions are required to spend nine months in education or training, pass an exam, and pay more than $200 in fees. The laws also restrict minority entry into professions, as proven by severe drops in the number of African-American plumbers after states enacted licensing laws.
Overuse of government-mandated occupational licensing reduces competition and increases prices of basic services, all in the mistaken belief the government is improving the quality of services. Less-stringent certification and voluntary certification are viable alternatives that allow consumers to choose services themselves. For example, when Mississippi reduced the registration requirement for African hair braiders, 300 new braiders entered the state. Many moved from surrounding, restrictive states, and some came out of the informal economy. Reducing licensing regulations helps an economy grow and increases competition, which ultimately benefits consumers.
The following documents provide additional information about occupational licensing.
Byron Schlomach, director of the Center for Economic Prosperity at the Goldwater Institute, addresses the growing problem of occupational licensing. He demonstrates licensing makes services more expenses while limiting people’s ability to enter a chosen profession. Reforms that would improve competition include right-to-earn-a-living legislation, the ability to vet and repeal hindering licenses, and many more.
Jack McHugh of the Mackinac Center documents the lack of evidence behind the claims of a need for occupational licensing. “Protecting the public” is the disguise the government uses to impose unfair regulations that hurt consumers and workers, he writes. In a specific example, he notes the average citizen of Michigan usually loses as a result of licensing laws.
Licensing limits the quantity of services, making prices rise for consumers. These laws restrict consumers’ choice in services and prevent provision of high-quality services at a lower price. A study on nurse practitioners and doctors proves this point.
Case Example: Occupational Licensing Unveiled—It’s Huge
Occupational licensing has increased dramatically in recent years. There is little evidence these laws protect the public or improve the quality of services. The restrictions hinder competition within professions and fail to produce the results the government claims. It is crucial to establish a check-and-balance mechanism to ensure licensure laws are actually effective. Otherwise, consumers pay for the unnecessary increased regulation.
Adam Summers of the Reason Foundation addresses the impact of occupational licensing on the labor market. Service quality and health and safety “may actually be diminished by occupational licensing,” he finds. Through high prices, reduced competition, and arbitrary requirements, the government thus hurts the average consumer and worker. Licensing is for special interests, not public interests, he writes. These laws hurt the poor and minorities disproportionately, he notes, proving the government is not helping those they say they are.
Morris Kleiner reflects on the growth of the strictest form of occupational regulation, licensing. The result is potential job losses and an increase in prices, he finds. The costs of occupational licensing show the practice must be ended or changed, he says, and he proposes certification of occupations which does not limit entry and mobility and may prevent job losses.
Carolyn Cox and Susan Foster demonstrate “occupational licensing frequently increases prices and imposes substantial costs on consumers.” Although licenses are allegedly imposed for the consumer, they are usually not in the consumer’s best interest. It is crucial to understand the costs of licensing and not just look to the potential benefits, they write. Instead of increasing public health and safety, licensing causes high prices and a lack of competition while not improving the quality of services.
Morris Kleiner and Alan Krueger note research shows nearly 30 percent of the U.S. workforce is required to obtain a license to work. The authors find licensing costs consumers more and reduces their ability to choose services for themselves.
The Institute for Justice conducted a national study to measure how burdensome occupational licensing laws are for low-income workers. The authors found “the barriers imposed by licensure schemes on those wishing to enter the 102 lower-income occupations we studied are not only widespread but often severe, arbitrary and irrational.” The authors conclude, “As millions of Americans struggle to find productive work, one of the quickest ways legislators can help is to simply get out of the way: Reduce or remove burdensome regulations that force job-seekers and would-be entrepreneurs to spend precious time and money earning a license instead of working.”
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit The Heartland Institute’s Web site at http://heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.
If you have any questions about this issue or the Heartland Institute Web site, contact Heartland Institute Government Relations Director John Nothdurft at firstname.lastname@example.org or 312/377-4000.