Occupational Licensing Reform: Walk, Don’t Run

Published March 5, 2016

In 1952, the Council of State Governments reported that less than 5 percent of U.S. workers were required to be licensed to legally perform their jobs. Economists Morris M. Kleiner and Alan B. Krueger put that number at 29 percent in 2008 — a nearly 500 percent increase in American workers licensed over the last half century.

Advocates of occupational licensure argue that it protects the public interest by excluding incompetent and unethical individuals from sensitive jobs. This is certainly the case in some fields, such as health care — but in general, research reveals weak evidence that licensure confers a tangible benefit on public safety or the overall quality of services provided to consumers. What it mainly does is increase costs: Kleiner estimates that licensing increases prices 5 to 33 percent, depending on the occupation and geographic location.

Deregulation, however, has faced strenuous political opposition. In an article last year, economists Robert J. Thornton and Edward J. Timmons investigated the phenomenon of “de-licensing.” Examining 40 years’ worth of records, the authors found only eight examples of this phenomenon at the state level, and in four of those cases, efforts to re-license the occupations followed soon afterward.

Given the political difficulty of removing licensure requirements, more modest state-level policy proposals are more likely to succeed. For example, states could shift from licensure to state certification, which is less restrictive.

Here are some other options for state policymakers:

Use cost-benefit analysis before requiring licenses in newly emerging occupations. Implicit in this approach is a high barrier to licensure. Lawmakers should start with an assumption of no regulation.

Coordinate with other states. The Council of State Governments, for example, could be effective in coordinating efforts to harmonize requirements across the states and develop interstate compacts for licensure reciprocity.

Reassess the scope of practice among existing regulated occupations. While so-called “turf wars” among occupations can be intense, a public airing of such concerns can often result in increased competition and innovation. For example, the present environment allows consumers a choice among various licensed mental health providers offering similar (but differentiated) services at a range of hourly rates.

While increasing labor mobility and consumer choice, reducing barriers to entry, and improving the climate for service innovation are all laudable goals, more modest, targeted attempts at reform will be easier to achieve and should be considered a major policy success.

[Originally published at Real Clear Policy]