In the early 1950s, less than 5% of workers were required to obtain a government license to enter certain occupations. Today, it’s more like 25%.
That 5-fold rise is due mostly to an increase in the number of professions that require a license.
Like most economic policies, occupational licensing has benefits and costs. To be sure, when properly designed, licensing laws play an important role in improving quality of services and protecting public safety.
For example, few people would feel comfortable traveling in a commercial plane flown by an unlicensed pilot. But when consumers choose a florist, a barber, or a decorator it becomes harder to see why the government needs to regulate who is allowed to practice in those professions for the benefit of public safety.
Licensing requirements can reduce employment opportunities and depress wages for excluded workers, and make it harder for workers to move across state lines.
Unlike labor unions, which help reduce inequality by shifting the division of the economic pie from profits to wages, licensing regulations can exacerbate inequality.
Obtaining a license often requires paying large upfront costs, which many low-income workers cannot afford. Licensing can also lead to higher prices for goods and services, which can disproportionately affect lower-income consumers.
Our licensing system also places additional burdens on certain groups of people. For example, it creates costs for military spouses, who frequently have to move across state lines, and for veterans, whose military training is not always recognized by civilian licensing boards.
Lack of transferability can also prevent immigrants from applying their training and work experience to jobs in the United States.
Moreover, there are over 27,000 state occupational licensing restrictions for people with criminal records, which reduce employment possibilities for justice-involved individuals and could increase recidivism. Many of these are blanket bans, which automatically disqualify individuals with records, regardless of how long ago the offense was committed or whether it has any bearing on the license for which they are applying.
While most licensing is done at the state level, the federal government can play a constructive role as well. Senators Mike Lee and Amy Klobuchar have recently held bipartisan hearings calling attention to the issue and examining the role of antitrust law.
Drawing on promising state policies, last year the Obama Administration put forward a set of best practices and called for state action to ensure that licensing policies minimize burdens for workers and consumers, while continuing to safeguard the well-being of the public.
These recommendations include removing excessively burdensome requirements (particularly blanket exclusions for individuals with criminal records), carrying out regular cost-benefit reviews to gauge whether licensing restrictions make sense, and harmonizing what is required to get a license and accepting licenses from other states rather than making workers meet additional requirements — such as new training, assessments, or fees.
Since the release of the White House best practices and call to action last year, legislators have proposed at least 15 bills and enacted four reforms in line with these recommendations.
Vermont introduced a bill strengthening its cost-benefit review process to make sure licenses are appropriate. Michigan passed a law making it easier for out-of-state firefighters to become licensed when they move into the state. And Georgia recently passed a broad criminal justice reform law that, among other things, prevents professional licensing boards from using a felony record as a basis for denying a license unless the record is relevant to the license sought.
Today, the Department of Labor is investing $7.5 million to support states’ efforts to increase the portability of licenses across state lines and reduce barriers to entering the labor market.
In April, the President also directed federal departments and agencies to ensure that federally issued occupational licenses are not presumptively denied on the basis of a criminal record.
The rise in occupational licensing is part of a broader trend toward more concentrated, less competitive markets. And the Administration wants to help reverse this troubling pattern.
Although much remains to be done, support for these efforts is growing. Reforming our system of occupational regulation is one step that can help to foster more competitive markets, making the economy more efficient and providing greater opportunities for all Americans.
Jason Furman is the chairman of the White House Council of Economic Advisers. Jeffrey Zients is the director of the National Economic Council and Assistant to the President for Economic Policy. The opinions expressed in this commentary are solely those of the authors.
