Many Americans, including older adults, lost their jobs and careers in the last recession. More than a half-decade since that recession ended, the national labor force participation rate remains stubbornly near its lowest level in decades. As a result, occupational re-training and barriers to entry into professions and trades/​vocations have emerged as a public policy concern.

A 2012 study by the Institute for Justice of 102 low- and moderate-income state-licensed occupations across all 50 states and the District of Columbia found that 66 have greater average licensure burdens than emergency medical technician (EMT). On average, a cosmetologist needed 372 days in training while an EMT needed just 33—with the latter certainly ranking significantly higher in relative public health and safety risks.

Occupational regulation is the traditional bailiwick of state governments, with the federal and local governments in a secondary role. Since the middle of the 20th century, occupational licensing, a subset of occupational regulation, has been a regulatory growth area for state governments and an increasing source of public revenue. In 1952, the Council of State Governments reported that less than 5% of U.S. workers were required to be licensed to legally perform their occupation. A recent study by economists Morris Kleiner of the University of Minnesota and Alan Krueger of Princeton University reveals that, based on 2006 data, approximately 29 percent of all U.S. working adults were required to possess a government license to legally perform their occupation. Moreover, in a 2003 study, the Council of State Governments estimated that over 800 occupations were licensed by at least one state government.

Washington pushes for reform / The Brooking Institution and the Obama administration recently began efforts to encourage state reform of occupational licensing, joining market-oriented think tanks and other institutions that have long advocated such reform. In March 2015, the Brookings Institution released a policy brief, Reforming Occupational Licensing Policies, authored by Kleiner that offers four policy proposals intended to systematize and harmonize occupational licensing regulation. He believes the proposals would reduce state-level regulatory and economic costs while simultaneously increasing employment opportunities and expanding consumer access to services and goods.

His four proposals include:

  • Employ cost-benefit analysis in the evaluation of occupational licensing. State government regulatory commissions or agencies, in conjunction with the relevant professional and trade/​vocational associations, would perform cost-benefit analysis on both new and existing licensing regulations. The analysis would rely on both new and existing studies. It would also consider the necessity for new regulation vs. better enforcement of existing regulations, the possibility of alternative market-based solutions to public regulation, and the expected effect of proposed licensing on practitioners and consumers.
  • Utilize federal engagement to promote best practices. The federal government would establish an interagency group to promote best practices in occupational regulation. States would also be encouraged to apply for federal grants for evaluating and improving their current system of occupational licensing.
  • Embrace state reciprocity. The state governments would develop reciprocity agreements to readily accept occupational licenses granted by other states. Kleiner notes that despite differences in road conditions and other requirements, state governments already universally accept other states’ driver’s licenses when citizens move to another state; so why shouldn’t they also be able to accept occupational licenses?
  • Adopt certification policies as a substitute for licensing. When the costs of licensing exceed the benefits, state governments should consider shifting away from licensing to a lesser form of regulation, such as certification or registration, or even no registration at all.

Along the same vein, in July 2015 the Obama administration released a report, Occupational Licensing: A Framework for Policymakers, jointly prepared by the U.S. Department of the Treasury, the Council of Economic Advisers, and the U.S. Department of Labor. The report reviews the growth in occupational licensing over the past few decades, its costs and benefits to American society, and its effects on employment, wages, and labor mobility. The report also offers a look at an evolving American workplace, one that is directly affected by the emergence of ubiquitous information technology (“the Internet”) and its attendant benefits for the American workforce. It also offers a framework for licensing reforms that includes the following “best practices” policies that balance licensing that “protects consumers without placing unnecessary restrictions on employment, innovation, or access to important goods and services.” The recommendations, many of which echo Kleiner, include:

  • Limit licensing requirements to those that address legitimate public health and safety concerns. In cases where public health and safety concerns are mild, it recommends using alternative systems that are less restrictive than licensing, such as voluntary state certification or registration.
  • Apply the results of comprehensive cost-benefit assessments of licensing laws to reduce the number of unnecessary or overly restrictive licenses through both sunrise and sunset reviews. Criteria in such reviews can include: legitimate public health, safety, and similar concerns; considering existing legal remedies and consumer/​reputational rating mechanisms and other less burdensome regulatory approaches; evaluating the adequacy of licensing requirements for quality and protection of consumers; the effect that the license has on practitioner supply and the price of goods and services; and the administrative costs of license enforcement.
  • Within groups of states, harmonize regulatory requirements as much as possible. This would include interstate compacts that recognize licenses from other states, thereby increasing the mobility of skilled workers. The concern, though, is that these compacts would adopt the licensing requirements of the most stringent participating states. If agreement on common standards for interstate compacts is difficult, consider a “two-tiered” licensing structure with more flexible requirements that would allow states to retain their rules while permitting interstate reciprocity to workers who satisfy higher licensing requirements.
  • Allow practitioners to offer services to the full extent of their current competency. Also, avoid categorically excluding individuals with a criminal record, and instead only exclude those individuals whose convictions are recent and relevant, and pose a legitimate threat to public safety.

Yet, despite all of these initiatives, attempts to rein in the licensing of occupations have not met with much success. Significant state-level occupational reform in recent years has been rare.

De-licensing / The May 2015 Monthly Labor Review, published by the U.S. Bureau of Labor Statistics, includes a paper by economists Robert Thornton of Lehigh University and Edward Timmons of Saint Francis University investigating the rare phenomenon of what they call “de-licensing” of an occupation, i.e., “the elimination of a license as a legal requirement for practicing a particular occupation.” The term “rare” is apt, as the authors found only eight instances of the de-licensing through state legislative action over the past 40 years. Even grimmer, in four of those cases, efforts to re-license the occupations followed soon afterward.

As the authors found in their research, so-called “sunset” committees (involving legislative audits of licensing and licensing boards) have on rare occasions recommended that occupations be de-licensed, but those recommendations usually were ignored by the legislatures. Occasional bills to de-license occupations have been drafted, only to languish in committee, fail to be passed by state legislatures, or go unsigned by governors. Furthermore, the authors noted several state legislative attempts to collectively de-license multiple occupations since 2011, with none being enacted. Thus, the evidence reveals that once an occupation is licensed, it is likely to remain so forevermore.

Thornton and Timmons have identified several factors responsible for the existing political economy of licensing. First, the powerful lobbying resources exercised through professional associations are effective at resisting de-licensure efforts. Second, such institutional factors as “regulatory capture,” i.e., licensure oversight by members of the occupation, and “collective choice,” i.e., the costs to the licensed occupation members from de-licensing, are high, while the benefits to individual members of the public are low and broadly dispersed. Third, fiscal considerations, such as fees from licensing, may create net surpluses that legislatures are reluctant to eliminate. Lastly, the authors note that should de-licensing occur, wages in the profession or occupation/​trade may be expected to fall immediately as new workers with lower qualifications enter the occupation. Consequently, the organized resistance to de-licensing by licensed practitioners is likely to be considerably greater than pro-consumer efforts to liberalize these professions.

So, given these significant institutional barriers to occupational regulatory reform, what are the prospects for the occupational reform proposals of the Brooking Institution and the Obama administration?

Reform efficacy / Thornton and Timmons’ findings can be summed up in one word: depressing. The evidence is overwhelming that once an occupation is licensed, it is virtually impossible to de-license it. Furthermore, legislative attempts to pass bills that attempt to de-license multiple occupations are met with highly effective lobbying efforts, often built around ad hoc coalitions drawing on considerable political resources. These coalitions can effectively “kill” occupational reforms at any step in the legislative enactment process. Moreover, in certain industries, particularly the health care sector, it is common knowledge that third-party insurers will not reimburse unlicensed practitioners for their services. Thus, occupational licensure is the imprimatur for insurance reimbursement. Given this highly effective special interest group defense against de-licensing efforts in the legislative or executive arenas, what policies have the potential for reducing regulation of occupations?

Both the Kleiner and Obama administration reform proposals include many rational recommendations that would improve the existing state-level regulatory environment. Realistically, for most occupations in the higher paying, higher education, health care professions, licensure is a requirement for both public health and safety risk criteria and health care insurance reimbursement for services provided. Moreover, even among moderate- to low-income trades/​vocations, a realistic attempt to de-license should emphasize a move to state certification and its attendant lower barriers to occupational entry and entrepreneurial opportunities.

Given this grim reality, policymakers interested in reform should shift their sights to more modest policy proposals that have a better chance of being adopted. Toward that end, I recommend the following:

  • Emphasize the use of cost-benefit analysis on proposed legislation to enact licensure of newly emerging occupations. Granted, cost-benefit analysis has not been the regulatory panacea that analysts once imagined. Still, it can underscore important issues that policymakers should consider. Hopefully this will shift the regulatory assumption toward greater modesty and skepticism about the benefits of such policy interventions as licensure.
  • Utilize state-level organizations and occupational/​professional associations to promote best practices in occupational regulation. Coordination of state government efforts at reform should take place among the states through the Council of State Governments and the representative professional/​trade associations. This institutional structure, because it directly involves the institutional actors in the regulatory process itself, should be much more effective in coordinating government efforts to harmonize occupational regulatory requirements (through so-called model regulatory language) across the states and develop interstate compacts recognizing licensure reciprocity. Of course, policymakers should take care that the professional/​trade associations do not circumvent this process, continuing the long, unhappy history of special interest capture.
  • Reassess the scope of practice among existing regulated occupations to allow for a full range of services to be provided. While so-called “turf wars” between and among occupations can be intense, a public airing of such concerns can often result in public policy solutions that increase competition and service availability and innovation, thus benefiting consumers. For example, among mental health care providers, while not without any inter-occupational controversies over “scope of practice” boundaries, the present environment does allow consumers a choice among various licensed mental health providers offering similar services at a range of hourly rates. In the case of nurse practitioners, however, the full scope of licensed practice, i.e., independent of direct physician oversight and prescriptive authority, has been granted in only 21 states and the District of Columbia.

Increasing labor mobility, reducing barriers to entry, improving the climate for service innovation, and increasing consumer choice are all laudable goals of occupational regulatory reform. But based on the unsuccessful track record of de-licensing in the United States, more modest, targeted attempts at occupational regulatory reform should be considered a major success if adopted and implemented.

Readings

  • “A License for Protection,” by Morris M. Kleiner. Regulation, Vol. 29, No. 3 (Fall 2006).
  • A National Study of Burdens from Occupational Licensing, published by the Institute for Justice. April 2012.
  • “Blooming Nonsense,” by Dick M. Carpenter II. Regulation, Vol. 34, No. 1 (Spring 2011).
  • Occupational Licensing: A Framework for Policymakers, published by The White House. July 2015.
  • Reforming Occupational Licensing Policies, Policy Brief 2015-01, by Morris M. Kleiner. Brookings Institution: Hamilton Project, January 2015.
  • “The De-Licensing of Occupations in the United States,” by Robert J. Thornton and Edward J. Timmons. Monthly Labor Review, May 2015.