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A new post by Brookings’s Melissa Kearney, Brad Hershbein and David Boddy points out that almost 30% of workers in the US need a license to do their job. Occupational licensing has increased quite a bit from its 1950s level of 5%, growing to 10% in the 70s, and now affects “workers of all skill levels,” reaching many more than “doctors, lawyers, nurses, and teachers.” Kearney, Hershbein and Boddy:
It is important to realize that occupational licenses are not mere state-sponsored certificates to signal that workers have completed some level of training; occupational licensing laws forbid people from practicing in their occupation without meeting state requirements. If the rationale for licensing an electrician is to protect public safety, it is difficult to see what rationale supports licensing travel guides. Yet, twenty-one states require a license for travel guides. …
There can be an obvious disconnect between the strictness of licensing regulations and the potential harm to consumer safety. For example, Michigan requires 1,460 days of education and training to become an athletic trainer, but just 26 to be an emergency medical technician (EMT). In fact, across all states, interior designers, barbers, cosmetologists, and manicurists all face greater average licensing requirements than do EMTs.
A disconnect indeed. I’m all for basic, sensible safety precautions, but it’s just not reasonable that a barber faces stricter licensing requirements on average than an EMT. So what effect do these extremely varied regulations have?
An obvious burden of such practices falls on would-be workers looking to enter licensed occupations… This can have real consequences for job creation. By erecting a barrier to entry into an occupation, occupational licensing can slow job growth and limit employment opportunities. It can also make it harder for workers—including licensed ones—to relocate. Because requirements to obtain a license vary by state, a worker moving to a new state may need to undertake more education, training, or new examinations to work in the same occupation.
Occupational licensing can also be costly to consumers, who may pay as much as 15 percent more for services when an occupation is licensed, according to some estimates. These higher prices (and earnings of licensed practitioners) could result from licensing weeding out low-quality providers: as consumers come to perceive higher quality, they are willing to pay more, and prices rise. On the other hand, requiring extra training and qualifications may simply reflect a barrier to occupation entry that reduces market competition and allows the incumbent provider to collect profits. Given this possibility, it is perhaps not surprising that much of the push for new and expanded occupational licensing has come from occupational associations themselves, not the general public.
As I pointed out in a previous post, government regulation is the biggest barrier to innovation, according to a poll of Silicon Valley insiders. While you probably want your doctor or electrician to have a proven level of competency, regulation is getting out of hand in other areas (for instance, in Nevada a person hoping to be a travel guide must have 733 days of training and pay $1,500 for the license). Let’s be sensible and trim back the unnecessary licensing requirements.
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