Humphrey School News—May 1, 2015

Professor Morris Kleiner's Research on Occupational Licensing Influences Federal Policy

In news reports about President Barack Obama’s $4 trillion 2016 federal spending plan, most headlines focus on big-ticket items like transportation, education, and tax reforms. But buried in the details is a proposal to spend $15 million to study occupational licensing. It’s a small line item that could lead to major savings and employment opportunities for millions of Americans. 

Humphrey School Professor Morris Kleiner spells out the reasons—and methods—for national reform of licensing practices in research commissioned by The Hamilton Project at the Brookings Institution. “Licenses are required for more and more professions, and that has two major impacts: consumers are overpaying for services, and workers are being pushed out of professions. There are tremendous societal costs with little improvement to service, quality, health, and safety.”

Kleiner has been referred to as the “intellectual godfather of studies” in this area. He finds that occupational licensing has been among the fastest growing labor market institutions in the Unites States since World War II. According to his research, in 2013 roughly 30 percent of jobs in the U.S. required some sort of license, up from just 10 percent in 1970. 

Without question, there are many professions where licensing is required—specifically when the public’s health and safety are at risk. For example, when hiring an electrician, it’s important to be able to figure out whether the person knows what they're doing; selecting a jack-of-all-trades might send your house up in flames. Like doctors and lawyers, electricians have to get a license from the government before they can work. That way, identifying qualified electricians need not involve letting a few houses go up in flames, and a person who buys or rents a house can have relative confidence that the tradesman who did the work was credentialed. 

But many states require a license to legally perform a job for pay where the risks of getting it wrong seem far less dire for potential consumers. For example, some states require that florists and make-up artists satisfy expensive and time-intensive governmental requirements before they are legally permitted to perform their jobs. Also subject to such requirements in various states are locksmiths, ballroom dance instructors, hair braiders, manicurists, interior designers, and upholsterers.

This regulatory “right to practice” is known as occupational licensing, and the policy now has a significant bearing on workers of all skill levels, and extends far beyond the occupations of doctors, lawyers, nurses, and teachers. 

According to Melissa Kearney, director of The Hamilton Project, and other researchers, there can be an obvious disconnect between the strictness of licensing regulations and the potential harm to consumer safety. For example, Michigan requires 1,460 days of education and training to become an athletic trainer, but just 26 to be an emergency medical technician (EMT). In fact, across all states, interior designers, barbers, cosmetologists, and manicurists all face greater average licensing requirements than do EMTs. 

“Cosmetologists are putting hair braiders out of business and veterinarians are going after people who file horse teeth, saying they need a veterinary license,” says Kleiner. In addition, some estimates indicate that consumers pay as much as 15 percent more for services when an occupation is licensed. 

Professor Kleiner proposes four specific reforms: 
• State agencies would perform cost-benefit analysis to determine whether requests for additional occupational licensing requirements are warranted 
• The federal government would promote best-practice models through financial incentives and better information
• Revise state licensing standards to allow more workers to move across state lines with minimal cost
• Where politically feasible, certain occupations that are licensed would be reclassified from licensing to certification or no regulation

Economists and think tanks predict that thoughtful reform of state occupational licensing practices would likely garner support from across the political spectrum. A call for evaluating the benefits and costs of widespread occupational licensing should appeal to those interested in expanding the employment prospects of low- and middle-income workers and keeping prices more affordable to consumers. The issue should draw interest from those committed to expanding economic opportunities by promoting entrepreneurship, the creation of small businesses, and giving individuals the ability to pursue their vocational interests.

Portions of this article were repurposed from a blog entry that originally appeared on the Brookings Institution’s website.

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