Occupational Licensing Hurts the Vulnerable Without Helping the Public

According to occupational licensing, the main purpose is to protect public against incompetent or crooked professionals in different trades and professions. Numerous researchers and even some proponents of intrusive regulation have revealed that licencing often increases the cost of licensing, while protecting the licensees from the competition. Multiple sources continue to show that occupational licensure acts as an obstacle to entry for those most at-risk, without providing any benefit to the general public.

Nearly one out of four Americans are licensed. But, the rate of licensing isn’t constant between groups. For example, workers of color are significantly less likely to have their licenses than those who are White or non-Latino/a. Study publishedFederal Reserve Bank of Minneapolis earlier this month. “Latino/a workers are the most likely, at about half of all (11 percentage points) to become licensed, than White workers who are non-Latino/a. Licenses for Asian, Black and American Indian workers, as well as Alaska Native and Alaska Native workers, are less common than those of White workers, at 6, 5 and 4, respectively.

Ryan Nunn and Katherine Lim (authors) point out the fact that licensing is not just for riding in certain occupations, but it also acts as an entry ticket. Recent decades have seen a significant increase in their useFrom 5 percent to about one-quarter of the workforce, however “workers who obtain a license tend not to get higher wages than comparable unlicensed workers. They may also have more job security. 

It is impossible to provide such protection from the market and income padding. Most oftenThis is considered an important selling point in occupational licensing. It has however been supported in some quarters.

Nick Robinson, of Harvard Law School’s Center on the Legal Profession in 2018, wrote, “This anticompetitive impact may also serve the public interest” in 2018 Washington Law Review Article. Occupation licensing, for example, may help protect the producers against market instability in markets that are used by the public to purchase goods and services. He said, “Anticompetitive protectionionism could also be used for explicit stabilization of the labor market to the benefit of workers and not consumers.”

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This is a terriblely bloodless defense of the exclusion. NeueAffluent entrepreneurs, skilled tradespeople and professionals all need labor, particularly when this burden is most heavily placed on those who had historically experienced the greatest difficulty climbing the economic ladder. Similar disparate effects were found in previous studies.

Stephen Slivinski, an economist, stated that “the higher the rate at which low-income occupations are licensed, the lower is the rate at which low-income entrepreneurs can start their own businesses.” 2015 Goldwater Institute StudyThe White House subsequently quoted this statement. Slivinski pointed out that there are “African Americans and Asians” in low-income entrepreneurs, as well that the Hispanic share is 2.5x that of the overall population. This means that occupational licensing severely hurt would-be entrepreneurs who have limited resources. Hispanics were particularly affected by the Minneapolis Fed study.

The worst part is that states which create and enforce occupational licensing, since it’s almost entirely a state-level requirement, tend not to have any reason for the rules they make. This February Survey of sunrise reviewsThe Institute for Justice (IJ), which examined the need for occupational licensing laws in 15 different states, found that the majority of officials did not see the value of regulation.

“About 82% of all reviews rejected licensure. Most—54%—concluded no new regulation was needed, while 20% favored other, usually less restrictive, alternatives,” according to authors Kathy Sanchez, Elyse Smith Pohl, and Lisa Knepper.

IJ reports were made possible through sunrise review laws that require states to evaluate the necessity of new occupational regulations. As licensing becomes more common and controversial, it is now easier for them to do so. IJ states that “all sunrise laws” require proof of harm for regulation to be valid. However, some sets more stringent standards than others. Ten states must show that an unregulated practice is a threat to the public’s health or safety.

IJ could review sunrise reviews for Arizona, Colorado and Florida. Most cases involved sunrise reviews. These were used when an association of professionals requested additional licensing requirements. It is clear that licensing laws have a greater impact on existing practitioners than they do to the people who employ their services.

According to the IJ report, “These findings show that licensing policy is often driven by special interest, and not the general public interest.” Overwhelmingly, the demands of motivated parties are made. They may place professional or financial gain above sound policy. Independent government review most often finds that these demands do not follow proper logic.

What can be done to make occupational licensing less harmful and more practical? The simple answers can sometimes be the most effective.

Boesch-Lim and Nunn from the Minneapolis Fed suggested that “licensing requirements (e.g. certain portions of an occupation’s curriculum) not required to protect public safety could be removed.” They suggest “experience and training obtained abroad could be more widely recognized” as that is a significant hurdle for immigrant who are often dismissed by licensing authorities.

IJ’s Pohl and Knepper, from IJ, say bluntly: “Despite occupational lobbyists’ claims, more than 30 years of sunrise reviews indicate licensing is often not the solution.” The trio recommends alternative ways to protect the public such as voluntary certification by third parties. This alternative is recommended in Slivinski’s 2015 report.

If you aren’t a fan of restricting competition and creating barriers for entrepreneurs, then occupational licensing doesn’t offer much in terms of benefits. The argument for retaining these restrictions is ever more difficult, given the fact that licensing has the most severe negative impact on those with low incomes and members of racial or ethnic minority groups.