Eliminating the anti-competitive effects of occupational licensing

Receiving and shipping worker Mike Pawloski prepares to ship a newly assembled transformer to a client in the RoMan Manufacturing plant in Grand Rapids, Michigan, U.S. December 12, 2018.  Picture taken December 12, 2018.  REUTERS/Rebecca Cook - RC14D0F95D40
Editor's note:

This article originally appeared in Real Clear Markets on January 17, 2019.

The U.S. labor market is no longer the competitive, flexible market that is often imagined by both proponents and detractors. The gap between reality and the ideal is often driven by employer actions that limit worker mobility, but government regulations—in particularly, occupational licensing—are also an important part of this story.

In every state, a combination of statute and regulatory policy determine whether and how a person may lawfully work in roughly one quarter of the available jobs. This in itself is certainly not evidence of a lack of competitiveness: there are some occupations in which public health or safety would be endangered by unqualified or unscrupulous practitioners, particularly when the public is not in a good position to distinguish good from bad actors. Regulation by the state is justified when these risks are acute and cannot be adequately addressed by ordinary market processes.

However, overly restrictive regulations can also prevent many workers from finding the employment that best fits their talents and training. These labor market obstacles have led to wage gaps between comparable licensed and unlicensed workers, as well as reductions in licensed employment.

Moreover, researchers have pointed to a wide array of related problems with occupational licensing as it is currently implemented: burdensome re-licensing requirements for workers who would like to move across states (including military spouses); the costly and time-consuming duplication of occupational training that skilled immigrants have already received in their home countries; blanket bans on licensure for people with criminal convictions (even convictions unrelated to their intended work); artificially increased revenues at for-profit-schools that provide legally required training; and so called scope-of practice restrictions that prevent physician assistants and advanced practice registered nurses from working to the full extent of their training.

Overly restrictive regulations can also prevent many workers from finding the employment that best fits their talents and training.

Regardless of one’s overall assessment of occupational licensing as an institution, these are serious problems that merit policymaker attention. Solving them will not necessarily require de-licensing any occupations; rather, it requires a careful attention to the ways in which licensing produces anti-competitive effects. It also depends upon a willingness to reject the most narrow, risk-averse formulations of licensing policy that exclusively focus on potential public safety harms, no matter how remote they may be or how little evidence exists to support them.

What can be done to improve licensing policy and ultimately make our labor markets more effective and competitive? The most important response is simply to be aware that licensing is a powerful regulation that can have unintended consequences, and to scrutinize all licensing rules with anti-competitive effects in mind. Some states are already beginning to do this, and two national efforts are especially promising: the Federal Trade Commission has long contributed its expertise to the licensing discussion, and a growing consortium of states are working with the National Conference of State Legislatures and its partners to improve licensing policy.

Moving forward, policymakers should take the costs of occupational licensing seriously and consider implementing the following policy actions to mitigate them:

  • Recognize out-of-state licenses. Some state licensing boards have established interstate compacts in a few occupations, but this does not go far enough: there should be a general presumption that states recognize licenses from other states.
  • Look for opportunities to allow immigrant applicants to demonstrate their competency. This requires mutual understanding between licensing board and immigrant applicant of the degree to which the applicant’s prior training and experience satisfy the state’s requirements.
  • Make licensure available to applicants with irrelevant criminal convictions. Eliminate so-called “good moral character” requirements that can bar any licensure applicants with a criminal conviction.
  • Align training requirements with legitimate public health and safety risks. The number of training hours required—and the consequent expense incurred by applicants—would be lower in many occupations if licensure requirements were restricted to curriculum that addressed legitimate public risks. Less-restrictive alternatives like private or state certification can help to address broader concerns about practitioner quality.
  • Allow licensed workers—and specifically non-physician health-care providers—to work to the full extent of their training and experience. The evidence from states that allow less-restricted practice is that this improves availability of health services and lowers prices without harming patients. A recent Hamilton Project policy proposal by professors Kathleen Adams and Sara Markowitz (of Emory University) discusses the concrete steps that states and the federal government can take to expand scope of practice.

In recent years, there has been significant progress made toward addressing the anti-competitive effects of occupational licensure. But much remains to be done in order to ensure that occupational licensing policies are aligned with their public safety objectives and do not impair economic opportunity for workers throughout the United States.