Occupational licensing laws have come under intense scrutiny as news outlets and policy organizations tell horror stories of health coaches, food truck owners, hair braiders, and other working-class Americans having to shut down their businesses because of outrageous and excessive licensing laws. Onerous occupational licensing laws are creating overnight criminals out of ambitious individuals who simply want to earn an honest living.
Much has been documented about harsh licensing laws that, on average, require potential employers and employees to complete years of education, pass multiple exams, and pay hundreds in fees to legally work in lower-income occupations.
What about the cumulative effects of occupational licensing laws on the economy and on job growth?
Morris Kleiner and Evgeny Vorotnikov of the Institute for Justice compiled the economic costs of licensing across 36 states in a first-of-its-kind report titled At What Cost?: State and National Estimates of the Economic Costs of Occupational Licensing. Kleiner and Vorotnikov confirm the substantial proliferation of state and federal occupational licensing laws over the past few decades. Since the early 1950s, licensing has skyrocketed 300 percent. Today, one in five Americans cannot work for pay without the government‘s permission.
Shockingly, the report shows licensing could cost the U.S. economy as much as $197.3 billion in misallocated resources and 1.9 million lost jobs each year. Licensing’s toll on economic growth and jobs ranges across the states. For example, burdensome occupational licensing reduces Rhode Island‘s economy by $675 million. Even worse, California experiences a $20 billion reduction in economic growth each year because of occupational licensing. Jobs lost to licensing ranges from 7,291 in Delaware to 2,054,106 in Texas.
These economic losses are a result of licensing restrictions that limit competition and increase costs. Even worse, there is no evidence that licensing yields higher quality goods and services—the purpose of the mandates.
In the licensing laws racket, consumers are the real losers. Industry leaders and lobbyists, not consumers, campaign for and urge legislators to create licenses that block competitors who might not have the time or money to acquire licenses. A wide variety of industry associations—including medicine, cosmetology, and music therapy—have long lobbied for stricter regulation and licensing laws, almost entirely to create more barriers to entry.
Heartland Senior Policy Analyst Matthew Glans says occupation licensing laws should be reduced to untie the hands of entrepreneurs and job seekers and to unleash economic growth.
“In many instances, licensing laws are unnecessary, which is why many states are passing reforms to reduce state licensing boards’ authority,” wrote Glans. “When implemented, these reforms have lowered the barrier to entry for entrepreneurs and employees. Even better, they have spurred economic growth, promoted competition, decreased business costs, and improved quality of services.“
Glans concluded, “One of the top priorities for all states should be to promote tax and regulatory policies that create more jobs for their citizens. Reducing occupational licensing laws is a good step toward opening up additional industries for expansion and empowering entrepreneurs to start their own businesses, the ultimate engine for economic growth.“
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