Economy & Business

How the Feds Could Reform Crazy State Licensing Laws

(Photo: Wavebreakmedia Ltd./Dreamstime)
This isn’t entirely a ‘state issue.’

Many occupational-licensing laws are beyond absurd, acting as barriers to employment rather than ensuring the safety and quality of license-holders’ work. In some states, you need a license to be a hair braider. In others, you need one to tell stories.

The good news for reformers is that the public has become more aware of these policies’ negative effects in the wake of a 2015 White House report that called for licensing reform. The Federal Trade Commission also has been working to shed light on the issue, making occupational licensing the focus of its July 27 Economic Liberty Task Force roundtable.

Unfortunately, many federal policymakers still see occupational licensing solely as a “state issue,” with no role for the federal government in reforming these oppressive laws. The reality is that the feds can play a role. In fact, they have several options that would make a world of difference in the occupational-licensing fight, while still respecting the principles of federalism. 

Here are five ways the federal government could make an impact today.

1. Expanding opportunities through existing federal funds

In April, Representative Tim Walberg (R., Mich.) introduced the New HOPE Act, which would give governors the ability to use existing federal work-force-training funds to identify and eliminate licensing requirements that pose unnecessary barriers to entry for workers. As Walberg noted in an interview with the Foundation for Government Accountability, the legislation “draws attention to the tangled web of licensing fees and requirements and gives states additional tools to streamline them.”

“Many states like Michigan are already doing these reviews,” Walberg said, “and this bipartisan bill helps put the right incentives in place to persuade other states to follow their lead.”

The New HOPE Act strikes a federalist balance by recognizing that if certain federal funds are already going to be sent to states for work-force training, governors should be allowed to use that money to overhaul harmful licensing requirements.

2. Using the District of Columbia as a model

Senators Ben Sasse (R., Neb.) and Mike Lee (R., Utah) took a different legislative approach last year when they introduced the ALLOW Act, which would enact occupational-licensing reform in Washington, D.C., and could serve as a template for states that seek to do the same. Exercising Congress’s authority over the district, the ALLOW Act would limit the city’s ability to create licensing requirements “only to those circumstances in which it is the least restrictive means of protecting the public health, safety or welfare.”

Sasse has cited the compelling story of Ego Brown, who would have needed to obtain four different kinds of permits, undergo a criminal-background history check, and pay up to $337 in fees for his D.C. shoe-shining operation in order to be able to operate indoors within the district legally. To shine shoes outdoors, he would have needed to overcome other barriers.

3. Enforce antitrust law against state licensing boards

The federal government can also monitor abusive practices by state licensing boards. Such boards are notorious for using anti-competitive tools such as high fees or unnecessarily difficult exams to block new competitors from practicing a trade or occupation. Perhaps the most ridiculous example is Louisiana’s using its Horticulture Commission to weed out would-be florists who merely want to arrange flowers for a living.

Unfortunately, many federal policymakers still see occupational licensing solely as a ’state issue,’ with no role for the federal government in reforming these oppressive laws.

Federal antitrust law is supposed to guard against this kind of collusive and anti-competitive behavior, but state governments traditionally have been immune from these laws. There are signs that this may be changing. Recently, the FTC brought an enforcement action against a North Carolina dental-licensing board which had mandated that only licensed dentists could offer teeth-whitening services. The case went all the way to the Supreme Court, which held that because the board was not actively supervised by the state government and was made up mostly of dentists — i.e., self-interested market participants — the arrangement violated antitrust law.

4. Lift licensing restrictions on federal employees

The federal government employs more than 4 million people across its many agencies. This means the feds have control over the job requirements for these positions and could use this power to reduce unnecessary licensing restrictions.

Indeed, this past December, the Department of Veterans Affairs finalized “scope of practice” reforms for nurse practitioners, which allow nurses to prescribe drugs and work outside the direct supervision of doctors. Previously, the VA allowed only licensed physicians to engage in such primary-care activities. Freeing nurses to do more of this work — which most already are trained to do — breaks up the doctor’s licensing monopoly in the primary-care realm while lowering the cost of care for patients. There is even hope the agency’s action might prompt states to adopt similar reforms for local hospitals.

The federal government should look for additional opportunities to reform licensing restrictions in federal agencies.

5. Defer criminal background checks for government hires

The so-called “ban the box” policy, which has gained some traction recently, prevents job applicants from being forced to disclose a past criminal conviction at the time they apply for a job or industry license. This can help reformed convicts — especially those guilty of relatively minor crimes — to find work and reintegrate into society.

The bipartisan Fair Chance Act would implement a “ban the box” policy for all federal government and contractor positions. Under the law, criminal background checks would be delayed until after a job offer was extended to a candidate, thereby giving a fair chance to all applicants but still ensuring that truly dangerous candidates are weeded out.


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Shoshana Weissmann is a digital-media specialist for the R Street Institute think tank in Washington. C. Jarrett Dieterle is a governance-policy fellow at the R Street Institute.


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