OPINION:
Tedy Okech, of Boise, Idaho, has braided hair almost her entire life. She was told she needed a cosmetology license to open a braiding salon in Idaho, requiring years of schooling and training and thousands of dollars. Otherwise, she would be fined or even arrested.
About one-quarter of Americans are now subject to these occupational licensing regulations in order to work — up from about 1 in 20 in the 1950s. Given these trends, are we all going to have to get permission from the government to work in our occupations? When Nobel laureate Milton Friedman was asked why so many occupations were licensed, he quipped that he was surprised that all workers did not seek to be regulated.
Recently, there has been a rethinking of the growth and policy efficacy of occupational licensing. And it is 100% warranted. Our work and that of many other economists suggest that the costs of these regulations are substantial. Employment in the licensed sector is lower than it would have been without these government regulations. Although wages and hours worked are somewhat higher for licensed workers, since they have an influence on the quantity of services provided, consumers lose due to lower access to regulated tasks.
The loss in employment is nearly 30% in the licensed sectors. Consumers pay higher prices for licensed services since the government is giving the regulated occupations a state-sanctioned monopoly for the work provided.
Occupational licenses also do not work like driver’s licenses, where you can drive in every state without having to meet each state’s requirements. As a result, when people move, they may not be able to continue their careers without incurring significant costs. Our research suggests that licensing may reduce interstate mobility by 7%. For occupations with lots of workers, such as teachers and barbers, the ability to move across state lines is estimated to be at least half as large as unregulated workers with similar characteristics.
Given the costs of regulation, are there benefits — through higher-quality services — that compensate for these costs? Historically, there is some evidence that licensing helps consumers. The evidence, however, on the effect of contemporary occupational licensing shows substantially fewer benefits than in the past. If anything, consumers seem to rely on online reviews rather than licensing status when choosing service providers in construction. Licensing also appears to make online platforms function less efficiently.
If these costs are generally higher than the benefits, will the number of licensed workers continue to grow — encompassing most workers, as Friedman suggested? Not necessarily. There has been some pushback from the federal government and many state governments. Eight years ago, the Obama White House released an excellent summary of research on the effects of occupational licensing and made a call to action to states to move forward with reform.
In 2020, the Trump White House issued an executive order to encourage further reform. The Biden White House has also called upon states to consider some reforms. Also, analyses of new data on its extent and its effects have been made available to lawmakers.
At the state level, there has been a movement to reduce occupational regulations. For example, in 2019, Arizona became the first state to accept licenses from other states without meeting arbitrary endorsement requirements. Now, more than 20 states have enacted some type of this reform. And the evidence seems to suggest that it has indeed increased mobility from state to state.
Both Republican and Democratic governors and their legislatures have acted to remove occupational licensing restrictions. Recently, in Nevada, GOP Gov. Joe Lombardo has frozen new licensing regulations and ordered further reviews of requirements. In addition, several states are enacting some form of review process for occupational licensing.
Taking another approach last year, Louisiana made it clear by law that workers have the right to earn a living, and they can bring lawsuits against the state if regulation imposes undue hardship.
Licensing reform has proved to be a nonpartisan issue. Much of the analysis has made a clear case that the costs of occupational licensing usually outweigh its purported benefits. The move to even higher levels of occupational licensing and regulations may not be as straightforward as once predicted. Occupational licensing is more grit than grease for the economy.
• Morris M. Kleiner is professor at the Humphrey School of Public Affairs, University of Minnesota, and a research associate at the National Bureau of Economic Research. Edward Timmons is director of the Knee Center for the Study of Occupational Regulation at West Virginia University and a senior research fellow with the Archbridge Institute.
Please read our comment policy before commenting.