Bipartisan Support Builds for Occupational Licensing Reform

Experts: Requiring certification for florists, decorators, harms the economy

Sens. Mike Lee (R., Utah) and Amy Klobuchar (D., Minn.) / AP
Sens. Mike Lee (R., Utah) and Amy Klobuchar (D., Minn.) / AP
February 3, 2016

Senators on both sides of the aisle touted the benefits of reforming occupational licensing requirements at a Senate Judiciary hearing on Tuesday, saying the requirements kill jobs, increase income inequality, and reduce choice and innovation for consumers.

The number of occupations affected by licensing has increased over time, leading some to question whether certain jobs should be held to these restrictions.

"There are head-scratching examples of requiring licensure without an obvious reason," Sen. Amy Klobuchar (D., Minn.) said. "Someone should not have to pay fees and pass a multiple-choice test to become a tour guide. Similarly, although hair braiders neither cut hair nor use chemicals, many states require them to obtain a cosmetology license."

Research from the Institute for Justice found that in the 1950s only 5 percent of the workforce was required to obtain a license. Today, that portion has grown to 20 percent.

Sen. Mike Lee (R., Utah) said that there are a growing number of cases where licensing regulations have been expanded so far that they harm competition, leaving consumers with higher prices and less choice.

"The underlying topic of discussion this afternoon is the importance of economic liberty to free and competitive marketplaces as more and more professions become subject to burdensome licensure requirements," Lee said. "This issue has come to involve basic freedom, freedom to work and to provide for one’s family."

"These licensing regimes also impose steep economic costs often with little rational basis to support them," Lee said. "For example, a report from the Institute for Justice notes that the average cosmetologist spends 372 days in training, the average EMT spends only 33."

Klobuchar echoed Lee’s statements, saying unnecessary licensing restrictions can increase both prices and income inequality.

According to testimony from the Institute for Justice, excessive licensing has killed 2.85 million jobs and adversely affects more people than union membership or minimum wage laws.

"These barriers are most harmful for individuals on the first rungs of the income ladder—including, disproportionately, members of racial and ethnic minorities—as those individuals can often least afford to pay the costs of time and money required to obtain a license," the testimony states.

According to critics, proponents of new licensing requirements support it because it reduces competition and makes it harder for new entrants to break into markets.

"Industry insiders frequently lobby legislators and regulators to impose new licensing barriers," the Institute for Justice said. "Existing market participants like licensing because it makes it more difficult for new competition to enter the market. Shielded from normal market pressures, industry insiders can charge consumers higher prices without concern that they will be undercut by lower-cost competitors."

In 2011, the Institute for Justice was involved in a case about the IRS’s imposition of new licensing requirements for tax preparers, who were previously unregulated.

An H&R Block representative said the new requirements would ensure that the company "won’t be competing against people who aren’t regulated and don’t have the same standards as we do." It was later revealed that the IRS official who was central to the regulations was the former CEO of H&R Block.

President Obama’s economic advisor has even admitted that licensing provides a barrier to competition.

"Occupational licensing sometimes functions as an unfair barrier to competition preventing the benefits of our economic growth from reaching the widest range of households and workers," said Jason Furman, economic adviser at the White House.

"Licensing is usually justified on the grounds that it improves quality and protects the public against incompetent or dangerous practitioners," Furman said. "But when consumers choose a florist, a barber, or a decorator, there is considerably less potential harm to the public on the line and it may be easier for consumers to evaluate provider quality on their own."

Published under: Economy , Regulation