Why the White House Is Opening Up About Occupational Licensing

July 31, 2015
Abuse of occupational licensing schemes has become such a serious problem that the White House has taken notice. On July 28, the White House Council of Economic Advisers issued a nearly 80-page report outlining the many problems with occupational licensing in the states, adding one more piece of evidence in the annals of research proving just how harmful these regimes have become in the U.S.

It's not just doctors and lawyers who need a license to work. More than 1,000 occupations, such as upholsterers and hair braiders, are subject to regulation in at least one state across the country. Twenty-five percent of the workforce needed to obtain a license to work as of 2007; that number stood at just 5 percent in the 1950s.

Why is this growth so dangerous?

It becomes more difficult - and more expensive - to enter the workforce as occupational licensing becomes harsher and more prevalent. For example, all 50 states require cosmetologists to have a government license to operate. In West Virginia, cosmetologists must go through 467 days of training and pay $185 before they can receive a state license to operate legally, according to a report from the nonpartisan Institute for Justice. These kinds of hoops affect the number of people who pursue careers in cosmetology. According to Kenyon College economists David E. Harrington and Kathy J. Krynski, 100 hours of additional required training reduces the number of Vietnamese manicurists by almost 18 percent. These burdens inevitably harm low-income workers the most.

Goods and services cost more for customers, even though quality doesn't always improve. The Federal Trade Commission issued a report in 1990 that found occupational regulations frequently increase prices and impose significant costs on consumers without improving the quality of professional services. This can cause a "Cadillac effect," where people either pay a higher cost for services or refuse to consume the service at all - which can bring about life-threatening consequences. For example, research from Sidney Carroll and Robert Gaston shows that stricter licensing requirements for electricians reduces the number of electricians in a given area, and that areas with a lower density of electricians are home to higher levels of accidental electrocution. The findings suggest homeowners without access to cheaper options attempt to do electrical work themselves, with tragic results.

These are just a couple of the side effects of poorly written and unnecessary licensing laws that are harming workers and consumers under the guise of protecting public health and safety.

As the White House report points out, licensing schemes are inconsistent in numerous ways, with some states imposing strict regulations on a profession while others don't require licensing at all.

For example, only three states - Florida, Nevada and Louisiana - impose harsh "practice acts" on interior design, limiting who can pursue the profession. To become licensed in these states, prospective designers have to pass the National Council for Interior Design Qualification, or NCIDQ exam. Before you can sit for the test, however, you must have a degree in interior design, complete an internship for two to five years (or more) and pay $1,265 just to take the exam. These time and cost constraints price people out of the market, but in the rest of the country interior designers don't face such strict barriers to work.

In addition to the variation in policy state to state, licensing requirements don't always make sense from position to position. In Wisconsin, becoming a cosmetologist takes 15 times the amount of training that it takes to become an emergency medical technician, or EMT, according to the Institute for Justice. Nationwide, cosmetologists spend an average of 372 days to get a license, whereas the average EMT spends just 33 days. This example also shows that the rules for each profession don't match up with the level of safety required to perform the job well.

"Fundamentally, licensing affects who takes what job," the White House report authors wrote. "If licensing places too many restrictions on this allocation of workers, it can reduce the overall efficiency of the labor market. When workers cannot enter jobs that make the best use of their skills, this hampers growth and may even lessen innovation."

Not everything in the White House report is praiseworthy - the authors suggest that, in some instances, regulations that promote better-educated professionals are good (the example the report cites is accountants). In reality, however, continuing-education requirements are best left to professionals and the businesses that hire them. Degree inflation has already kicked out the ladder of economic opportunity for many Americans who formerly had access to occupations that now require a postsecondary education, regardless of whether the skills learned in college are applicable.

Overall though, it's commendable that the White House has taken up the cause of reducing barriers to entry for people who want to make a living in the job of their choice. States should take the time to reexamine the licensing laws on their books, profession by profession, and be honest about whether the rules benefit the many (consumers and workers) or the few (special interests who gain from decreased competition).

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