In the United States, more than one-quarter, or 25-30% of workers, are now required to hold a license to perform their jobs. Many of these licenses are controlled and administered at a state level (Roth & Ramlow, 2016). In fact, there has been a five-fold growth in state level licensing since the early 1950s. In states such as Wisconsin, the growth of licenses and licensees has actually outpaced the population growth. Much of this change and growth can be attributed to a change in the workforce configuration toward personal and professional white collar services and away from more supervised, less empowered blue collar, low-skilled jobs.
According to the Treasury Office of Economic Policy, the Council of Economic Advisors and the Department of Labor (2015), “1,100 occupations are licensed in at least one state but fewer than 60 are licensed in all 50 states.” This reflects the priorities and motivations of individual states and their given preferences over licensing trades. South Carolina, for example, has a 12% licensed workforce whereas Iowa, at the higher end, licenses 33% of its labor force. Such differences in licensing regulations across states are not only down to differences in the types of occupations that require a license, but also to an individual state’s specific policies and licensing philosophy.
Licensing requirements across individual states and occupations also vary in terms of educational requirements and professional experience. For example, to become a security guard in Michigan, one would need to undertake three years of education and training whereas, in other states, just 11 days will suffice. Numerous examples of this type of disparity are available across many job types making it very difficult for a transient labor force to enter and compete within their given profession.
Roth and Ramlow (2016) show that there has also been a steady pace of occupational licensing reform as a result of bipartisan interest across numerous states. The reforms have fallen across two categories, those that serve no state interest and those that have little impact on health and safety. In 2015, Attorney General and Governor of Texas, Gregg Abbott, signed a bill eliminating a $200 annual licensing fee from various professions, thus impacting 600,000 workers. In 2016, Governor of Arizona Doug Doucy signed a bill eliminating licensing for citrus packers, yoga instructors and noncommercial driving instructors. And, in 2015, Governor of Rhode Island, Gina Raimondo, eliminated 27 licenses for a selection of occupations, music therapists, barbers, cosmetologists and estheticians. Overall, reforms have taken place across 12 states from 2014 to 2016.
In economics, there are two competing propositions in favor of occupational licensure: rent-seeking and public interest (Maurizi, 1974). The rent-seeking theory presents that occupational licensing limits access to certain occupations, which increases wages for those practicing and costs for those consuming (Friedman, 1962). The public interest theory argues that licensure is needed to the extent that it protects the general public from unlicensed professionals and that the end user (the client or customer) may lack the necessary knowledge or information to make an informed decision, which can, in turn, poorly impact local communities (Arrow, 1963).
Those in favor of licensing argue that its key purpose and function, when designed and implemented correctly, is to provide consumers with two main benefits: high quality services, and more structured health and safety standards. Other opinions suggest that governments license for three primary purposes:
- To generate income for the state.
- To protect public safety.
- To raise the standards of the profession.
According to Roth and Ramlow (2016), licensing also serves a fourth and often understated function: to protect members of a profession from competition and hiking up consumer prices. This speaks to the process of “grandfathering,” a system whereby all existing practitioners in an industry are automatically granted a license when new licenses are developed and rolled out. This, in some cases, occurs without a need for them to meet even the basic minimum of standards.
A report prepared by the Department of the Treasury Office of Economic Policy, the Council of Economic Advisers, and the Department of Labor (2015) suggests that occupational licensing encourages individuals to professionalize and creates career pathways incorporating education and skill training requirements. However, a review of the literature and research in the same report shows, in fact, that the opposite may occur, and that occupational licensing may:
- Increase barriers for entry into an industry.
- Increase small business overheads through licensing fees.
- Reduce employment opportunities.
- Increase service pricing for consumers, varying from 3-16%.
- Not significantly improve the level of service quality.
- Create a 10-15% disparity in earnings between licensed and unlicensed workers with similar education, experience, and training.
- Accelerate a decline in innovation and research.
- Restrict worker mobility across states.