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04.27.2017

How Occupational Licensing Laws Are Fencing People Out Of Opportunity

America is waking up to a troubling prospect. For millions of Americans, particularly located at the lower end of the income scale, opportunity is diminished, economic mobility is scarce and hope is fleeting. Reversing the fortunes of this forgotten class of Americans can’t happen overnight, but government can remove and reform unnecessary barriers to entry that hinder opportunity and prevent Americans from making a bet on themselves.

Occupational licensing laws, or state permission slips to work in certain regulated professions, impact millions of workers in the United States — about one of every four workers. In order to start work as a cosmetologist or a massage therapist, for instance, states have instituted licensing laws that require a prospective worker to accomplish minimum training requirements, pass exams, meet age and grade requirements, and pay fees to the state. Moreover, licensing laws are far from uniform. Each state determines which professions require a license, and the accompanying regulations and requirements will often differ from state to state resulting in a broad and unreasonable red tape spectrum.

Consider the story of Illona Holland, a licensed massage therapist with 600 hours of training who moved from Maryland to Nebraska with her husband. According to The Platte Institute for Economic Research, Nebraska law required Holland to accrue 400 more training hours in order to practice massage therapy in her new home. Knowing full well the cost in time and money, Holland was forced to move her business across the Missouri River to Iowa, where she could legally practice massage therapy in a state with similar licensing requirements to Maryland. Nebraska had gained a resident, but lost a worker and a new business.

To further illustrate how this entire system has a cost, a new study from the Wisconsin Institute for Law & Liberty (WILL) evaluated how licensing regulations impact employment for ten low and moderate income professions. Using publicly available data from the Institute for Justice and the Bureau of Labor Statistics, this peer-reviewed study ranked each state according to a Red Tape Index which measured how burdensome each state’s licensure regulations are in relation to one another. The findings were crystal clear: states with more burdensome licensing requirements had significantly lower employment.

Wisconsin, for instance, is the fifth most burdensome state according to the Red Tape Index. Over the last two decades, the number of licenses in Wisconsin has increased by 84%, impacting more than 440,000 workers. But with some modest reforms, the Badger State could see a significant increase in employment. By adjusting licensing requirements for these ten professions to the national average Wisconsin could see a 2% bump in employment. And if the most competitive, or least burdensome licensing requirements were adopted, Wisconsin could boost employment by 7%.

Burdensome licensing requirements can result in a real drag on employment . But they can also result in an unreasonable and confusing patchwork of requirements. In New York and Massachusetts, aspiring cosmetologists are required to complete 1,000 hours of training. Head west to Wisconsin and that same cosmetologist needs to complete 1,550 hours of training. Cross the Rockies to the Pacific coast and our cosmetologist friend lands in Oregon where she needs to complete 2,300 training hours to comply with state law. This a difference of a 9 month curriculum on the east coast versus a 16 month curriculum on the west coast. Now, does anyone really think they’re safer, or getting a better haircut in Portland, Oregon over Manhattan or Boston?

Of course not.

The trend in the states, until relatively recently, has been near uninterrupted growth in licensing laws, rules and regulations. Policymakers, both Republican and Democrat, have contributed towards the creation of this web of red tape. It’s not a red state or blue state problem. Illustrating the need for reform among free market conservatives, 7 of the 10 most burdensome states have full Republican control of both houses of the legislature and the governor’s mansion.

Occupational licensing is ultimately a balancing act. On the one hand is the need to protect public health and safety from clear and substantiated harm. On the other is the responsibility to foster an economic climate of freedom and opportunity. For too long, licensing advocates have convinced lawmakers that the current system needed more regulation, typically under the guise of public safety. It is now time for opportunity advocates to make their case that the current system has overcorrected and increasingly serves to cripple the dreams and aspirations of real people.


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This article was originally posted by Forbes.
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