Barbers require an occupational license.
Photo credit: Robert Lawton
Barbers require an occupational license. Photo credit: Robert Lawton
Barbers require an occupational license.
Photo credit: Robert Lawton

Occupational licensing – “a form of regulation that requires individuals who want to perform certain types of work to obtain the permission of the government” – has grown significantly, particularly here in Iowa. In our state, 33 percent of the workforce is licensed by the state, the largest percent in the nation.  A recent report, Occupational Licensing: A Framework for Policymakers, calls for “ensur[ing] that licensing protects consumers without placing unnecessary restrictions on employment, innovation, or access to important goods and services.” The source of this report? The Obama Administration’s Department of the Treasury Office of Economic Policy, Council of Economic Advisers, and Department of Labor.

While you recover from the shock that the administration of President Obama, who has “overseen an unprecedented annual average of 81 federal regulations that would cost the economy over $100 million per rule,” (“House Leads Fight Against Unprecedented Regulatory Burden,” National Taxpayers Union E-Newsletter, August 6, 2015) would issue a report calling for less regulation, keep in mind that most occupational licensing is mandated by state governments. So the President is calling for states to cut back on their regulations while the federal government keeps piling them on. However, even given this hypocrisy, you should not dismiss this report out of hand, for it has some good points on why we should lessen licensing regulations on America’s workers.

While the licensing of some professions, such as doctors or dentists, seems prudent, licensing requirements have grown far beyond their original scope. In the early 1950s, less than 5 percent of the workforce in the United States was covered by state licensing laws. By 2008, those covered had grown to 25 percent of the workforce. “Among licensed workers today, fewer than half are in health care, education, and law – traditionally very highly licensed occupations. Instead, large shares of licensed workers today are in sales, management, and even craft sectors like construction and repair.”

Negative aspects of licensing include higher prices for goods and services, “with research showing effects on prices between 3 and 16 percent. Moreover, in a number of other studies, licensing did not increase the quality of goods and services, suggesting that consumers are sometimes paying higher prices without getting improved goods or services.” Occupational licensing also often reduces total employment in licensed professions – however, for those already in that profession, it may be viewed as positive to limit the competition.

Licensing varies greatly from state to state. “Over 1,100 occupations are regulated in at least one state, but fewer than 60 are regulated in all 50 states.” Iowa has the highest percentage of workforce that is licensed, at 33 percent. Two other states are also over 30 percent – Nevada and Washington. At the opposite end, South Carolina only has 12 percent of its workforce that is licensed, and four other states also license less than 15 percent of their workforce: Indiana, Kansas, New Hampshire, and Rhode Island. The training required for a license also varies from state to state. “For example, Michigan requires three years of education and training to become a licensed security guard, while most other states require only 11 days or less. South Dakota, Iowa, and Nebraska require 16 months of education to become a licensed cosmetologist, while New York and Massachusetts require less than 8 months.”

The report recommends that states adopt the following “best practices” to improve occupational licensing while meeting the needs of workers, businesses, and consumers:

  • Limiting licensing requirements to those that address legitimate public health and safety concerns to ease the burden of licensing on workers.
  • Applying the results of comprehensive cost-benefit assessments of licensing laws to reduce the number of unnecessary or overly-restrictive licenses.
  • Within groups of states, harmonizing regulatory requirements as much as possible, and where appropriate entering into inter-state compacts that recognize licenses from other states to increase the mobility of skilled workers.
  • Allowing practitioners to offer services to the full extent of their current competency, to ensure that all qualified workers are able to offer services.

I hope that states will take a look at this report and consider the recommendations, particularly here in Iowa, where we have the largest percentage of our workforce that must obtain a license from the government in order to work in a chosen profession. I also hope that President Obama can see that lessening regulations on businesses and workers would be good for the federal government, too!

Republished by permission from INSTITUTE BRIEF, a publication of Public Interest Institute.

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