New Report Reveals States With Heaviest Occupational Licensing Burdens

Teacher Helping Students Training To Become Beauticians Painting Nails

getty

More than 20% of America’s workers need permission from the government in the form of an occupational license before they can practice their profession. The occupational licensing burden placed on Americans varies from state to state, and a new report from the Archbridge Institute reveals the states that impose the heaviest burdens.

Occupational licenses are permits issued by governments that are legally required before someone can work in certain occupations. State policymakers largely decide which occupations require a license and the process for obtaining a particular license, though there are some professions, such as pilot, that require a federal license.

States can also impose barriers on professions that are not job-specific licenses. For example, Alabama does not have an acupuncturist license, but it does require all acupuncturists to be licensed physicians. Archbridge’s report, co-authored by economists Edward Timmons, Noah Trudeau, and Benjamin Seevers, uses data on specific licenses and these other barriers to rank the states.

The five states with the most occupational licensing and related barriers are Oregon, Tennessee, Texas, Kentucky, and Florida. The five states with the fewest licensing and related barriers are Kansas, Missouri, Wyoming, Indiana, and New York. The map below shows each state’s ranking by quintile: Red states have the most licensing barriers and purple states have the fewest licensing barriers. Some of the occupations included in the ranking are barbers, cosmetologists, funeral directors, piping contractors, and real estate appraisers.

As shown in the map, many of the most heavily licensed states are in the Southeast. In addition to Florida and Tennessee, Arkansas, South Carolina, Alabama, and Kentucky have large licensing burdens. Many of the states with the smallest licensing burdens are in the middle of the country, including Indiana and Illinois in the Midwest and Colorado and Wyoming in the Mountain region.

Another thing that jumps out from the map is that a state’s occupational licensing burden is unrelated to its political orientation. Republican-controlled states such as Florida and Texas have large licensing burdens, while Democrat-controlled states such as New York and Illinois have smaller burdens. Since neither political party seems uniquely in favor of licensing, both may be willing to implement reforms to reduce its burden.

Supporters of occupational licensing often claim that requiring people to do a certain amount of training or studying before they can work improves safety and protects consumers. However, there is little evidence that occupational licensing improves safety. In a study that examines the impact of licensing on electricians, Morris Kleiner of the University of Minnesota finds no evidence that licensing differences impact work-related injury rates, death rates, or injury severity. This study is consistent with other research that shows licensing has a negligible impact on worker or consumer safety.

One reason workers may support occupational licensing that is consistent with research is that licensing increases wages and restricts competition by reducing employment in licensed occupations. One study finds that on average licensing increases wages by 11%. Another study finds wages generally grow faster for licensed workers than for non-licensed workers. Regarding employment, one study estimates that occupational licensing reduces the number of jobs in the United States by nearly three million.

Instead of improving safety, the benefits of licensing primarily accrue to licensed workers in the form of higher wages while the costs fall on consumers who face higher prices and unlicensed workers who are prevented from competing with licensed workers.

One reform that has become popular in recent years that reduces the harmful effects of occupational licensing is universal licensing recognition. Universal recognition laws allow workers licensed in one state to work in another state without going through the other state’s licensing process. Research shows that states with universal recognition laws attract more workers and experience increases in employment.

More than two dozen states have implemented some version of a universal recognition law, as shown in the map below. Of these states, only ten have implemented the best, or gold-standard, version. This version of universal recognition does not require licenses in other states to be “substantially equivalent” or “substantially similar” to be recognized under the law. This version also does not impose residency requirements. This makes it possible for licensed workers who live near a state border to easily work in more than one state. For example, Virginia has implemented the best version of universal recognition, which allows a Maryland-licensed worker who lives in Maryland to serve customers in Virginia.

Several low-ranking states in Archbridge’s report have not implemented a universal recognition policy, including Oregon, South Carolina, and Texas. Each of these states should implement the gold-standard version of universal recognition, but they should not stop there. Universal recognition is a poor substitute for reducing licensing burdens—such as training hours or fees—or eliminating unnecessary licenses altogether.

Rare or unique licenses are good candidates for elimination, and the Archbridge report includes each state’s most unique license. California is one of only two states to require a license to be a geophysicist. Montana is one of only three states to license an apprentice gas fitter. Rhode Island is the only state that requires licenses for HIV-AIDS counselors. Eliminating these licenses is unlikely to cause problems since so many other states survive without them.

Too much occupational licensing reduces employment and increases prices while having little to no impact on worker or consumer safety. As Archbridge’s index shows, every state has room to improve its occupational licensing policies. Some states have made progress by implementing strong universal recognition laws, but every state should regularly evaluate its licensing policies and reform or eliminate unnecessary burdens. Doing so will allow more people to pursue meaningful work and create more choices for consumers.