By Tim Shea
Last week, we left things off with a question: why would state governments require thousands of hours of professional instruction when public safety concerns can be addressed with a fraction of that? It’s an important question, one that must be answered to understand the growing harm of occupational licensing run amok. The blunt and ugly truth? Protectionism.
By imposing high barriers to entry, professionals within regulated industries are able to restrict their competition, which in turn allows them to keep the price of their services artificially high. In effect, state governments have created a de facto guild system not all that different from that which plagued Medieval economies. The resulting cartel power granted to those professionals already in an industry offers them job security, higher incomes, and a whole host of other benefits that wouldn’t be found in a free market system. The downside is that it leaves the rest of us footing the bill.
Before looking at exactly how those costs pan out, it is important to highlight that this line of argument is not simply right wing, anti-regulation propaganda. An Obama Administration study cited the political influence of professional organizations as one of the decisive factors in determining whether or not licensing was required to enter that profession. In other words, political clout—not public safety—has been the primary driver of the rapid expansion of licensing laws across the United States. As such, reforming this neo-Guild system truly has become a bipartisan project. That says a lot in the era of knee-jerk divisiveness in which we find ourselves.
Alright, back to costs. First there are the higher prices we all pay for services provided by state-licensed professionals due to artificial restrictions on supply. Generally speaking, these costs are diffused out across the entire population while the benefits are concentrated to just a few. This is hardly a new condition for the U.S. economy, and if it were limited to just a few industries, the effect on consumers would probably be negligible. As more and more occupations fall under the purview of licensing boards, however, the higher prices add up to something the average person really feels burning through their wallet.
Even more damning is the effect these laws have had on employment and job creation. Simply put, there are currently tens if not hundreds of thousands of Americans who can’t enter their chosen profession due to onerous licensing requirements. One recent study found that employment within ten heavily licensed industries would increase by 4.5 percent across the country, not by eliminating occupational licensing outright, but merely by reducing requirements to those of the least restrictive state. These are not highly-technical, hard-to-enter industries already out of reach to most Americans. They are skilled but accessible trades that could serve as a vehicle to a better life for thousands of low-income people. Instead, state legislatures have chosen to create pseudo-monopolies that benefit few at the expense of many.
The good news is that this a not a problem without a solution. Right now, one-in-four U.S. workers need a license for their chosen occupation, and this is increasingly being recognized as overly burdensome. As such, the stage is set for occupational licensing reform. Local, regional, and state economic development organizations will have an important part to play in this process. As the all-but-inevitable legal and political battles take shape, EDOs can serve as a counterpoint to the influence of powerful professional organizations and advocate for consumers and would-be business owners within their jurisdictions. They must band together and make the argument to legislatures that state-sanctioned monopolies are damaging to the economy. Given how occupational licensing runs counter to the job creation mandates of many EDOs, this should be a natural role for them to fill.
Once again, this doesn’t mean occupational licensing laws are inherently bad and should immediately be repealed in entirety—just like criticizing Dodd-Frank isn’t an indictment of all banking regulation and advocating for occupational “boot camps” isn’t a cry for the elimination of four-year universities. What it does mean is that we, as a country, need to take a hard look at our current occupational licensing framework. Are our laws truly designed to serve the public, or are they special interest carve-outs masquerading as public safety? The line between the two is admittedly oftentimes blurred. Next week, we’ll take a stab at laying out some rough guidelines on how to frame this conversation.