A key to increasing economic mobility

The Council of Economic Advisors (CEA) recently released an important and timely report on occupational licensing. The recommendations of “Occupational Licensing: A Framework for Policymakers,” fit nicely with two growing realizations about jobs in the middle of the skill and wage distribution. The first is that they usually require education beyond a high school degree, but less than a four-year degree. The second is that they now play an important role in promoting economic mobility among young adults from poor families and could play an even more important role in the future. These middle-skill jobs (in clerical, repair, health, construction, and sales occupations) now constitute about half of American jobs and promise to remain the biggest sector of employment in the American economy. Around half of these jobs require a license, so licensing is of great importance to anyone trying to figure out how to help workers from disadvantaged families get decent jobs.

The CEA report provides a concise overview of the prevalence of licensing, the costs and benefits of licensing, and policy ideas to make sure that licensing does not unnecessarily hold back young people trying to acquire and use employment skills to earn a decent living. Although licenses can provide protection to consumers and allow professionals to signal their competence, the CEA report identifies several problems with current licensing practices. Perhaps the most important is that licenses are sometimes too restrictive, in which case they constitute a barrier to worker entry and earnings. Restrictive licenses also result in higher prices for goods and services, which impose direct costs on consumers. In fact, as the CEA says, “licensing restrictions cost millions of jobs nationwide and raise consumer expenses by over one hundred billion dollars.”

With stakes like these, the report’s recommendations bear special emphasis. The most important of these recommendations are to limit licensing to situations in which there are serious public health and safety concerns, to use benefit-cost analysis in every case possible to determine if proposed licensing requirements produce benefits that at least equal their costs, to avoid licensing if the net benefits are negative, and to figure out ways to encourage states to harmonize their licensing requirements with those of other (specially adjacent) states. That last requirement is important because states have licensing requirements for well over 1,000 occupations, which could constitute a barrier to workers crossing state lines to pursue employment opportunities—even within the same profession.

If followed, these four recommendations could help open up new job possibilities for modestly educated and trained workers, increase the wages of these workers, and reduce the price of items used by consumers—a fine trifecta of benefits.

But beyond these advantages of cutting back on unnecessary and counterproductive licensing requirements is the big picture of the vital role of mid-level jobs in the American economy. Many students of helping disadvantaged young adults flourish in the economy, like Tamar Jacoby, the President of Opportunity America, think that the nation is in the midst of dramatic changes in how the middle tier of workers—those who are not headed to college but want something beyond a high school degree—can improve their prospects in the nation’s modern job market. In a superb review of the issues that will appear in a volume on “Education for Upward Mobility” to be published later this year by Rowman Littlefield, Jacoby surveys the entire field of alternative, competency-based credentials. Usually based on a combination of education and skill development, the world of credentialing includes certificates (usually awarded by an educational institution and based on classroom work that is occupationally focused), certification (based, not on classroom training, but on a test that detects whether job-related competencies have been achieved) and that are usually issued by professional organizations representing employers, and licenses (usually issued by local or state government based on a test that, if passed, results in permission to practice a specific profession). According to the Census Bureau, 13 percent of Americans over age 16 hold a license to work, about 10 percent hold occupational certificates, and 5 percent hold certifications issued by a company or trade association.

A highly desirable characteristic of these alternative ways of preparing for the workforce, especially the certificates and certifications, is that course work and skill acquisition can often be obtained through online programs that are less expensive than attending college, as well as through apprenticeship programs. If classroom education is required, preparation and learning can be done at community colleges with their reasonable fee schedules and flexible hours. By obtaining credentials through online coursework and taking classes at community colleges, which can often be paid for with Pell grants, students can progress at their own pace and without accumulating the large debts that often afflict low-income students attending four-year colleges.

This world of certification holds real promise for helping young people enter good jobs in occupations that offer decent salaries and a chance for advancement. If the CEA recommendations are followed, and licensing is scaled back in favor of certification, the path to the middle class will widen and more Americans will get ahead.