Have you ever sat down in your hair stylist’s chair and noticed how many licenses they have? It sounds odd that you need a license to cut hair (if it’s not good don’t go back), but it’s more than just looks, a cosmetologist must learn to deal with burns and cleanliness procedures for our safety. There are plenty of occupational licenses from florists to interior designers, but not every occupational license is created equal, and many just serve as a barrier to competition.
During the modern era, there has been an explosion of “occupational licensing” laws. These are rules and regulations on who can enter a particular job market. Typically, licensing laws are implemented by different industry boards who are held accountable by state and local governments. However, these boards function mostly as mini-monopolies that prevent new workers, or “competitors,” from entering their industry.
In the 1950s, only about 4-5% of occupations had licensing requirements attached to them. At the time, the economy was mostly manufacturing based. Today’s economy, in contrast, is service-oriented. As such, about 25-30% of modern occupations require licenses.
Several studies, including the Federal Trade Commission’s (FTC) Economic Liberty Task Force and Institute for Justice’s License to Work report, find the seriously negative effects of this practice on the economy, impacting everything from fees, education, experience, exams, minimum grade levels, and minimum age requirements. These burdens are incredibly irregular, meaning that requirements for the same positions vary greatly from state to state and rarely seem rational for the nature of the work being performed, especially for low-income workers. For example, the average cosmetologist spends around 372 days in training, while the average emergency medical technician spends only 33.
Another 2015 study from The Heritage Foundation showed that licensing laws at the state level cost consumers $127 billion every year, a per-household cost of over $1,000. These cost burdens come from a combination of higher wages for workers already inside the market and reduced competition from people outside the market that result in increased prices for services like personal care or health.
Several news stories feature Louisiana in particular due to its significant burdens in the past few years on florists. An opinion piece in USA Today highlighted how difficult the Bayou State made it for florists in particular to get licenses, noting that the exam consisted of arranging four bouquets in four hours to be examined by a panel of licensed Louisiana florists. These “licensed florists” thought it best to stifle new “competitors” from entering the occupation; as such, the passing rates for the florist exam were below 50%. Currently, there is a bill moving through the Louisiana House of Representatives to help fix the problem. It would repeal licensing requirements for wholesale and retail florists, and it has bipartisan support from Gov. Bel Edwards (D) and Rep. Julie Emerson (R-Carencro).
But, why should young people in particular care?
From the IJ License to Work report, the 102 occupations analyzed in the study are licensed in at least one or more state, and are “well-suited for individuals just entering or re-entering the economy.” This means that young citizens leaving high school or college to find a job are most impacted by these regulations.
Additionally, the report notes that the occupations being regulated are “ideal” for small businesses. Even when young, entrepreneurial individuals seek to create their own businesses, they are stopped and impacted by licensing laws. A paper from the Goldwater Institute showed that state’s licensing more than 50% of lower-income occupations experienced an 11% lower average entrepreneurship rate than the average for all states. Alternatively, states with less than ⅓ of low-level occupations licensed experienced an 11% higher entrepreneurship rate than the total state average. Licensing barriers decrease the likelihood of entrepreneurship in states restricting their workers.
How can this generation fix the problem?
While this is primarily a state and local government issue, there are several avenues the federal government can take to encourage states to reform licensing laws. This includes:
The ALLOW Act:
Introduced by Sens. Ben Sasse (R-Nebraska) and Mike Lee (R-Utah), this legislation would reform occupational licensure in Washington, DC, and serve as a template to the states. This law would create requirements, “only to those circumstances in which it is the least restrictive means of protecting public health, safety, or welfare.
Lifting some licensing restrictions for federal employees:
The federal government should be encouraged to look for opportunities to reform their own hiring process. Currently, the feds employ nearly 3 million people. There are some entry occupations that can be reformed. Take the Veterans Affairs Department. In 2016, the VA reformed “scope of practice” regulations for nurse practitioners. Now, nurses are able to prescribe drugs outside the direct supervision of doctors, which many already learned to do. This gave nurses the power to help more patients and lower patient costs. If departments across the Executive Branch examined their hiring practices for unnecessary barriers to entry like the VA with nurse practitioners, there would be a more efficient process of hiring in the federal government with access to more potential employees.
The New HOPE Act:
This measure, introduced in the House by Rep. Tim Walberg (R-Michigan), grants governors with the ability to use their existing federal workforce training funds to find and eliminate licensing requirements posing unnecessary burdens to entry-level workers. By passing the New HOPE Act, the federal government could encourage the states to reform licensing laws without allocating any extra taxpayer dollars to the cause.
While the licensing issue is complex due to the diverse range of laws in each state, there are reforms that can be implemented by Congress and the Executive Branch that would begin to address the problem. Young Americans care about access to opportunity in the economy, and eliminating unnecessary, anti-competitive barriers through licensing reform is a step in this direction.