When Bad Regulation Stops You From Earning

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Many occupational licensing laws, though made with the best intentions, place unnecessary barriers to entering the workforce and need a rethink.

Occupational licensing is a hot topic among economists, policy researchers and wonks at present. Though it has not received the same level of attention of other economic issues in recent times, such as those relating to international trade and tariff regulations, the importance of this issue to the economy is no less profound.

A recent article in the Wall Street Journal, “Is It Wrong to Cut a Homeless Man’s Hair Without a License?” illustrates how problematic occupational licensing has become in recent times. The article describes a case in Arizona where a man by the name of Juan Carlos Montes de Oca gave homeless men free haircuts. Mr Montes de Oca, while studying for his cosmetology license, had not been fully certified yet. The state’s licensing board discovered what Mr Montes de Oca was doing and launched an investigation. They claimed his work amounted to “a real risk” and sought to shut him down. Arizona governor Doug Ducey ordered the investigation to be shut down upon hearing what the board tried to do and Mr Montes de Oca be spared any penalties. Governor Ducey then announced a review of Arizona’s licensing laws in response to this case.

The article goes on to cite several more examples of excessive regulatory burden in the form of licensing laws. It includes cases of hair stylists requiring 750 hours of study to obtain a cosmetology license, even if their work does not involve cutting hair, shoe shiners being required to get numerous permits and pay more than $1500 in licensing fees and more. In each case, the necessity of the regulations on safety grounds is questionable. The impact on workers seeking to earn a living is genuine.

The number of occupations that require licensing has risen exponentially in recent decades. A study conducted by the Institute for Justice, around 1 in 4 jobs in the United States need licensing, increasing severalfold from a figure of 1 in 20 in the 1950s. Some estimates put the figure as high as one-third of all jobs requiring licensing. Either way, the picture these figures paint is clear. Licensing regulations for jobs has gone from being strictly limited to specialist occupations to the present day situation where licenses are required for all manner of jobs. Occupations including barbers, hair stylists, auctioneers and interior designers all now require government-mandated permits in some US states.

The issue is further compounded by the fact that a criminal record will outright prohibit a jobseeker from obtaining a license in these professions. By limiting the jobs available to those with a criminal record, the likelihood of being locked out of the jobs market dramatically increases. The consequence of this is that reoffending becomes much higher, impacting public safety and increasing the social and financial burden on the community at large. There are of course certain occupations that should be off-limits for those convicted of crimes. A convicted criminal shouldn’t be licensed to be a teacher or a doctor, for instance. But many of these restrictions do not correlate to the job. For instance, in Maryland, there are nearly 350 licensing restrictions related to felony convictions, including restrictions by convictions for ‘moral turpitude’. The arbitrary nature of many of these restrictions has led to Maryland, a state where more than 20% of all jobs require a mandatory license of some form to work in, to begin reforming their laws.

While occupation licensing is ostensibly designed to ensure certain standards for businesses and to protect consumers, it is questionable how beneficial for businesses and consumers alike some more recent requirements truly are. There have been a multitude of studies which concluded there is no link between licensing requirements and improved safety outcomes for consumers. One of these studies was conducted by Brookings. The author of the report, Morris Kleiner concluded that

“Economic studies have found little impact of occupational licensing on service quality in occupations that are not widely licensed; even in occupations that are widely licensed, studies have found few impacts of tougher requirements for licensing on health measures or quality outcomes”

Another key issue with occupational licensing is that it limits economic mobility. Licensing shuts out workers from working in lower-middle-class occupations and denies these workers a chance to improve their lot in life. This issue is made worse with the patchwork of laws which vary drastically from state to state. A worker who is licensed in one state may well have to sit another examination or obtain a new set of permits or undergo additional costly background checks for the same occupation they worked in. According to Kleiner (2015),

Evidence suggests that relicensing policies impose costs on workers looking for jobs they want in another state, reducing their ability to earn a living

Excessive occupational licensing also results in higher costs for consumers. The barriers to new competitors caused by occupational licensing prevent competition in these markets. While workers in these industries who are fortunate enough to already have licensing benefit from higher wages, it comes at the expense of reduced services and higher prices being passed on to consumers. Meanwhile, the effect on services is dubious – there appears to be often little correlation between the level of licensing and regulation for many occupations and the quality of services consumers receive as a result.

While the issue of occupational licensing reform is often associated with being a conservative and libertarian issue, it is increasingly being recognised by the political left as well. Toward the end of his term, President Obama proposed allocating federal funds to help state governments reform licensing laws. The move was an astute one by Obama; his recognition of and work on this issue has been continued by the Trump administration and by state governments nationwide. Many states are now realising the extent of the unintended consequences and problems occupational licensing results in. There is still much work to be done, however.

In a political discourse increasingly characterised by polarisation and partisanship, significant economic reform has largely fallen by the wayside. The recognition by both sides of politics of the need to reform and reduce the regulatory burden on this issue offers a rare chance for a bipartisan economic reform that is egalitarian and enhances the prospects of the ordinary worker. Reducing unnecessary occupational licensing burden, while maintaining stringent standards for industries that genuinely require them, would enhance many peoples’ economic prospects, benefit consumers and result in a more dynamic, competitive marketplace.

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About Author

Scott Davies is a freelance writer from Adelaide, Australia, with an interest in politics, history and culture. He holds a BA (Honours) in History and is currently studying a Master of Teaching (Secondary).

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