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Occupational Licensing Needs Reform

March 1, 2016 Posted by Liam Sigaud - No Comments

Among the many deeply flawed and harmful regulations and rules passed by Maine lawmakers or created by bureaucrats, none may be as detrimental to our economy, insulting to common sense, and punishing to poor families as occupational licensing.

Cosmetologists, realtors, interior designers, funeral attendants, auctioneers, barbers — all must obtain a government license to work in Maine. According to the Institute of Justice, 39 low- and middle-income jobs in Maine require a license, representing about one-fifth of the workforce.

Almost universally, research on occupational licensing indicates that government-imposed requirements — unless formulated with exceptional care — stifle competition, reduce employment, and increase prices. Even the Obama administration, in a recent report, conceded that, “There is evidence that licensing requirements raise the price of goods and services, restrict employment opportunities, and make it more difficult for workers to take their skills across state lines.”

In states with extensive dental licensing regulations, for instance, the few practitioners in the market are able to charge 12 to 15 percent higher prices than in parts of the country where dental professionals can more easily enter the workforce. A 2014 study by the National Bureau of Economic Research found that strict nurse practitioner requirements increase the cost of medical exams by up to 16 percent.

Licensing regulations also create employment barriers that limit opportunities to earn a living wage. By keeping young people out of certain industries, or by making it prohibitively expensive and time-consuming for them to work, government discourages them from entering the field of their choice. A 2015 study by Arizona State University revealed that stricter licensing leads to an 11 percent lower entrepreneurship rate among low-income individuals.

Defenders of occupational licensing counter that robust entry requirements prevent incompetent and poorly trained workers from jeopardizing the safety of the public. And for some professions – in the upper-echelons of medicine, for instance – that argument is certainly valid. No one wants to discover in the operating room — when lives are on the line — that a “surgeon” has never received formal medical training. Yet there’s little evidence that the growing number of licensed professions — a five-fold increase since the 1950s — improves the quality of services.

A study by the Reason Foundation found that too many licensing hurdles can actually jeopardize safety by suppressing competition (thereby removing a powerful incentive to improve performance) and giving consumers a false sense of security that licensed individuals are experts, despite the fact that licensing boards are often reluctant to discipline incompetent licensees.

If policy research is so consistent in revealing the detrimental economic and social consequences of licensing regulations, why haven’t reforms been enacted to address this problem? The answer is that entrenched business interests derive a good deal of money from maintaining barriers to professional entry. Licensing requirements have more to do with imposing costly and time-consuming obstacles that limit competition than with ensuring competence and protecting public safety. The Foundation for Economic Education puts it this way: “When government sets the standards for quality, the standards are more likely to be dictated by political pressures.”

As in many areas of public policy, a small, vocal minority is able to maintain regulations that disadvantage tens of thousands of hard-working Mainers.