Rhode Islander Jocelyn DoCouto was like many aspiring entrepreneurs: hardworking, ambitious, but subject to burdensome licensing regulations that made it nearly impossible for her to earn a living. Before this summer, when Governor Gina Raimondo signed a bill exempting hair braiders from traditional cosmetology licensing requirements, Jocelyn would have had to pay $17,000 and spend 1,200 hours in cosmetology training that has little relation to her craft of African hair braiding. With the law’s passage, Jocelyn is now able to run a successful business. However, not all workers across the U.S. are so lucky.
Over the last few decades, these licensing laws have exploded due to aggressive lobbying of state legislatures by professional organizations. In 1970, about five percent of Americans were required to have a license to work. Today, that number stands at around 30 percent. The procedure for obtaining a license consists of the same general components—nationwide application fees, exams, training, and work experience—but requirements vary widely across both professions and state lines. Lower-skilled jobs tend to be regulated by the government, while higher-skilled occupations, such as law and medicine, tend to be supervised privately through organizations comprised of the practitioners themselves. It may seem reassuring to know that your doctor, plumber, or makeup artist is licensed to practice their trade. The reality, however, is that these regulations harm both working class Americans like Jocelyn and the U.S. economy as a whole.
Perhaps the most significant implication of licensing regulations is the massive upfront cost it poses to low-skilled labor. For instance, the average training requirement for a cosmetologist is 372 days, compared to the mere 33 days required to become an emergency medical technician. These requirements are often in place even for loosely-related fields such as eyebrow threading and African-style hair braiding, which are not covered by cosmetology curricula. A range of lower-skilled professions, from landscaping to home entertainment system installation to fortune telling, also require licensure. A recent national study of 102 low-to-moderate income fields found that occupational licensing laws impose an average of $209 in fees, nine months of education, and an exam. For many low- to middle-income workers, these are huge burdens.
Also troubling is the complete lack of consistency in licensing requirements across state lines. Seven states require a license to be a tree trimmer. California demands that tree trimmers have four years of experience, pay $529, and take two exams, while Maryland requires two years of training and just one year of experience. Furthermore, licenses are nontransferable across state lines. Workers must not only apply for licensure but also complete the specific training modules required by their state. These disparities have adverse impacts at both the micro- and macro- levels. Not only do they restrict the ability of lower-income workers to move to areas of greater economic opportunity, but they also create inefficiencies in the distribution of human capital.
Even for those with more human capital, these laws also have adverse impacts on higher-income occupations—namely law and medicine. Private licensing organizations in both fields excessively regulate who may practice. Tight state restrictions on the “unauthorized practice of law” prevent inexpensive internet-based companies from becoming full service providers. These effects have even greater impacts in the medical field: The U.S. faces a shortage of primary care practitioners, and occupational licensing laws prohibit nurses and nurse practitioners from providing care independent of doctors. While advanced medical degrees are undoubtedly required for some procedures, in more than half of states in the U.S., non-physician primary care providers cannot prescribe medications for the kinds of routine illnesses they are trained to handle. This means independent nurse practitioners and affordable retail clinics are crippled in their ability to provide necessary, low-cost medical care to those who need it most.
Between the high upfront costs to workers and the quagmire of regulatory inconsistencies, it’s no surprise that occupational licensing laws have a number of additional adverse economic effects. The most prominent is income inequality. High costs create artificially high barriers to entry, particularly in lower-skilled fields. By restricting the number of service providers in a given field and thus reducing competition, incumbent providers are able to charge higher fees for their work. For example, licensing is associated with 14 percent higher wages, and this effect is more pronounced in higher-skilled professions. Those who are unable to obtain licenses must either face unemployment or crowd into occupations with lower barriers to entry and lower wages. This increases income inequality because established firms and professionals, which tend to be better off, can continue charging excessively high prices, while new entrants are locked out of these higher paying jobs.
But the question still stands: Despite their many flaws, do occupational licensing laws protect consumers from dangerous or fraudulent practices? Empirically, the answer is an unequivocal no. This is best demonstrated by the disparities in licensure regulations between states. Manicurists, for example, require only three days of training in Alaska and nine in Iowa. Over ten states require at least four months of training, yet there is no evidence of higher rates of dangerous manicures in Alaska or Iowa. Furthermore, and perhaps more importantly, there is no evidence that consumers have demanded stringent regulations for many lower-skilled jobs: Occupational licensing bills have been passed almost exclusively as a result of incumbent professionals’ lobbying.
In recent years, Rhode Island has begun taking on the issue of licensing statues—these laws have cost the state about 7,000 jobs and $675 million in annual economic output. In addition to the bill exempting hair braiders from cosmetology requirements passed this summer, in 2016, Governor Raimondo signed a budget repealing over two dozen occupational license requirements across the state. While these are steps in the right direction, more needs to be done to open up opportunities for residents and attract innovation.
Fortunately, several feasible solutions have been proposed to ameliorate the situation. For many low-skilled services, market forces may simply be the best way to ensure quality outcomes, both through informal internet-based service rating websites such as Yelp as well as through demand for certifications that consumers desire. Another possible alternative includes requiring registration with a state regulatory body, which displays practitioners on a publicly-available list. Improper citing of credentials or consumer complaints could result in removal from the list so that consumers would know which businesses have a high-quality service record. Service providers could also obtain voluntary professional certification to demonstrate competence. Both of these solutions would allow for consumer transparency and some central oversight without excessive requirements.
Couched in innocuous language, occupational licensing laws have quietly proliferated, decreasing opportunities for vulnerable workers and placing an undue burden on consumers. The deleterious effects of these laws must be curtailed through reform at both the state and national levels.