The proliferation of license requirements nationwide hurts workers and consumers.
Pennsylvania governor Tom Wolf has taken steps toward making it easier for low-skilled workers to enter the job market, releasing a proposal to eliminate state licensing for 13 jobs and streamline the process overall. Overly restrictive licensing and credentialing required for relatively low-skilled occupations, such as barbers and hair braiders, will be repealed or significantly reduced.
Government licensing boards have been a growing problem in the American economy since the 1950s. In 1950, 5 percent of workers were required to hold licenses in their professions; that number is now at 22 percent. In thirteen states, even bartenders must be licensed. And state governments tend to farm out the job of licensing to professional associations, which have obvious incentives to restrict entry and inflate wages.
Licensing disproportionately locks out poorer workers. According to Shoshana Weissmann, a fellow at the public-policy research organization R Street, wealthier people “can afford the school (for licensing). . . . Poorer people can’t afford school, and even if the government pays for it, the opportunity cost (of forgoing work for school) is too high.” So workers with less money are stuck in worse-paying jobs, with their way up the income ladder blocked off.
Those who pay for the services are also disadvantaged by licensing; poor consumers, deterred by higher costs, often resort to doing jobs for the electrician or contractor themselves, with predictably shoddy results. Weissmann also notes that when some states delicensed plumbers, there were “no higher incidents . . . no data to prove” that there was suddenly a wave of overflowing toilets and poorly fitted pipes.
And licensing makes it harder for workers to use one of the best strategies for gaining employment: moving where the jobs are. In many states, licenses must be obtained in-state, making it much harder to transfer a skill across state lines. A National Bureau of Economic Research paper found that occupational licensing reduced interstate migration by 36 percent, leaving Americans stuck in one place, with worse job prospects. This problem is a focus of Wolf’s reform, by bringing Pennsylvania licensing into line with surrounding states.
In Pennsylvania, licensing falls under the purview of the Department of State, with licensing board members appointed by the governor and approved by the Senate. Often, they have ties to the industries they oversee and “tend to be members” of professional associations, according to Edward Timmons, an economics professor at St. Francis University. He says this leads to “a variety of competing interests; folks with potential ties to [license-granting] schools, [and an] incentive for folks to [require] both training and school.”
Licensing boards also fail at fulfilling their main purpose: ensuring quality control. A study done by the Obama White House noted that “licensing did not increase the quality of goods and services, suggesting that consumers are sometimes paying higher prices without getting improved goods or services.” And the advent of Internet review services has, in many occupations, superseded a license’s imprimatur. Timmons also points out that quality control can easily be done without licensing: “For instance, chefs and other people in food preparation, these folks aren’t licensed. . . . The way government does it is random inspections.”
Policymakers and legislators should be dreaming bigger than Governor Wolf, however. Licensing’s effects are more pronounced as jobs become more skilled. Lawyers and medical professionals enjoy far greater benefits from licenses than do hairdressers and plumbers, and they make up a substantial portion of the top 1 percent of American earners. This isn’t to say that any person claiming to be a qualified lawyer or doctor should be able to set up shop, but basic tasks such as document drafting and teeth-whitening shouldn’t be closed to those who don’t go to years of expensive graduate school. And many private schools get along as well or better than public ones, without requiring teachers to get post-grad educational degrees. The Bar Association pales as a political opponent compared with teachers unions, however. That reform may need to wait.