Over the course of two generations, the percentage of workers in the U.S. who are required to hold a license to do their job has gone from 5 percent to about 30 percent. Some of that increase is due, no doubt, to the increasing technological sophistication of modern society – the set of skills an auto mechanic needed in 1950 would never suffice in 2015, for example.
Some of the licensing is clearly safety driven – and some of it just makes good sense. But consider this: In 21 states, you must have a license to be a travel guide. In Nevada, a travel guide must train for 733 days before being able to earn a license, which costs $1,500. Florists, hair braiders, upholsterers, manicurists and many others also need licenses in some states to legally perform their work, and many if not all licensed professionals must regularly renew those licenses, also for a fee.
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The system also leads to some absurd disparities in licensing requirements for various jobs. In Michigan, someone who wants to be an athletic trainer must undergo 1,460 days of training – while in the same state, an emergency medical technician can be on the job after just 26 days of training. In Iowa, it takes 490 days of training to become a cosmetologist, while in New York and Massachusetts it requires only a (still arguably ridiculous) 233 days.
In a new paper commissioned by the Brookings Institution, economist and University of Minnesota professor Morris M. Kleiner raises troubling questions about the system of occupational licensing in the U.S. Specifically, does it make sense to require make-up artists and auctioneers to undergo costly and time-consuming certification processes? Should the person who shampoos hair in a beauty salon be required to hold a license? Who’s actually benefitting from the certification – and what’s really going on?
WHY THIS MATTERS
The issue of overly strict rules about job licensing, far from a trivial matter, could be costing the U.S. economy as many as 2.85 million jobs and adding $203 billion a year to the costs Americans pay for professional services.
Kleiner, a nationally recognized expert on the subject, marshals the evidence from numerous economic studies, including his own, to show that, with the exception of professions where the demonstration of technical skill and knowledge is critical to protecting people and property from serious harm – think electricians, doctors, school bus drivers – the main effects of occupational licensing requirements are to reduce employment and keep the price of services artificially high.
“[E]conomic studies have demonstrated far more cases where occupational licensing has reduced employment and increased prices and wages of licensed workers than where it has improved the quality and safety of services,” he writes.
For example: “More stringent licensing of mortgage brokers has no influence on the number of foreclosures, but does lead to higher prices of mortgages, again likely due to fewer providers of the service.”
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It’s an issue the White House is taking seriously. The president’s budget request for the next fiscal year is expected to include funding for states to conduct a cost-benefit analysis of their occupational licensing programs.
Kleiner also points out that in many states, the licensing requirements are set by boards of individuals already working in the field in question. Sometimes elected by their peers, these people have a clear interest in curbing competition.
Kleiner lays out suggested fixes. First, no new licensing requirements should be imposed without an honest assessment of costs and benefits. “The burden should be on the government together with the associations representing the occupation to demonstrate that the social benefits of these requirements exceed the economic costs.”
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Second, the federal government should create a working group to develop voluntary standards and best practices that could guide the states in rewriting rules.
Third, he argues for state reciprocity rules. Right now many workers licensed in one state can’t work in other states because of different licensing requirements. In essence it’s a form of job lock: The decision of one spouse to take a better job in a different state could be colored by the fact that the second spouse would be unable to find comparable work after a move without completing another expensive and time-consuming training program.
Finally, Kleiner argues that there should be a reclassification of many currently licensed professions (dog groomer, ballroom dance instructor), in which even a poor practitioner would be unlikely to cause serious harm. Rather than requiring a license, the lower bar of “certification,” requiring a smaller time commitment and less expense, might be appropriate.
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