The following was published in Forbes.
The Obama Administration is backing the fight to roll back occupational licensing, a little-known drain on the economy. Typically associated with fields like law and medicine, today a quarter of America’s workforce now needs a license to work—a fivefold increase from the 1950s and more than double the number of Americans who are now union members.
Millions of Americans must now gain government approval to do their jobs, even in trades as harmless as trimming trees, braiding hair, whitening teeth and arranging flowers. Many licenses are a substantial barrier for aspiring workers and entrepreneurs. According to a 2012 report from the Institute for Justice about entry requirements into low and mid-income occupations, on average, workers must complete nine months of education or training requirements, pass at least one examination and spend over $200 in fees. Altogether, one study even estimated that licensing could “result in up to 2.85 million fewer jobs nationwide, with an annual cost to consumers of $203 billion.”
On Tuesday, the White House Council of Economic Advisers, Department of the Treasury and the Department of Labor released a new report that scrutinized this pernicious form of red tape. After examining dozens of academic papers and even the works of famed free-market economists Adam Smith and Milton Friedman, the White House came to this conclusion: “the practice of licensing can impose substantial costs on job seekers, consumers, and the economy more generally.” Eliminating irrational regulations “would improve economic opportunity.”
Occupational licensing is typically defended as a way to ensure minimum training requirements and to protect consumer health and safety. But after reviewing a dozen studies on licensing, in a range of fields including teaching, dentistry and floristry, the White House found no “large improvements in quality or health and safety from more stringent licensing. In fact, in only two out of the 12 studies was greater licensing associated with quality improvements.”
Instead, the White House found stringent licensing laws often accompanied “significantly higher prices” for consumers. Imposing stricter licensing laws on dental hygienists and assistants “increases the average price of a dental visit by 7 to 11 percent.” More burdensome licensing for nurse practitionersraised the average price of a well-child medical exam by as much as 16 percent.
By charging higher prices, licensed workers can boost their own wages. According to the White House report, “on average, unlicensed workers earn 28 percent less than licensed workers.” Even after accounting for differences in training, experience and education, licensed workers still earn 10 to 15 percent more than the unlicensed.
With that in mind, it’s not too surprising many licenses originated not from a genuine need to protect consumer welfare, but from concerted lobbying efforts by trade associations. As the White House report notes, licensing confers “concentrated benefits (for the licensed practitioners) and diffuse costs (for consumers and would-be practitioners),” creating a potent incentive to urge lawmakers to pass, strengthen and maintain licensing requirements.
Once enacted, occupational licenses have remarkable staying power. According to a report by the Bureau of Labor Statistics released in May, over the past 40 years, only eight occupations have been completely “de-licensed” (i.e. repealed by the legislature or struck down in court).