Occupational licenses and their implications

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Occupational licenses are regulations imposed by the State on the labor force. The State requires that in order to practice specific trades, individuals must acquire a certain degree of knowledge for a certain period of time, pass examinations, and pay fees to the Government, among other requirements. This aims to safeguard public health and safety, protect consumers by ensuring educational requirements and industry oversight, and support job development and enhanced professionalism.1 If a person does not possess a license or certification to practice a trade that requires it, they can face fines and jail time.2

This state regulation presents barriers to the economic freedoms of the individual and his or her right to earn a living as he or she chooses. Such regulations have been shown to reduce employment in licensed occupations, geographic mobility, innovation, and market competition, increase prices for goods and services, and impose disproportionate burdens on low-income people as well as military veterans, people with criminal records, immigrants authorized to work, and the unemployed.3 In addition, they are often used by elites and interest groups to annihilate competition and exclude the small businessman.4

In the 1950s, about 1 in 20 Americans required an occupational license to practice a trade. Today, that figure is estimated to be one in four Americans.5 According to researchers at the Institute for Justice’s  License to Work (LTW) index, the increase in new occupational licenses is due to the regulatory expansion of occupations not previously regulated by the state. This increase in regulated occupations has caused concerns among individuals, legislators, and leaders in various sectors who have recognized that licensing comes at a cost and does not necessarily increase quality and protect consumers.

These licensing burdens can vary among jurisdictions and are often disproportionate to public health and safety risks. Such inconsistencies invite us to question whether it is necessary to regulate certain occupations;6 for example, occupations such as cosmetology, massage therapy, and barbering, which promote the modest individual's upward mobility, require licensure. This requirement may reduce access to employment and seriously impede the ability of low-income people to better themselves and move toward prosperity, which has been seen in jurisdictions where particular occupations are regulated.

Another way in which occupational licensing impacts access to jobs is by making geographic mobility more difficult. Each jurisdiction varies in the occupations it regulates and the requirements. As a result, when a person moves from one jurisdiction to another, he or she may be forced to reacquire credentials to practice his or her occupation. This implies the disqualification of a person in an occupation simply for having crossed a border. It also discourages mobility to jurisdictions that may offer better opportunities for an individual.

In theory, occupational licensing is supposed to improve the consumer service experience and protect public health and safety by establishing minimum qualifications and preventing incompetent practitioners; however, through indices such as the LTW, it has been shown that requiring a license or certification to practice a trade increases costs to consumers, employers, workers, and the government, without guaranteeing better outcomes. The urgency of promoting reforms in the area of occupational licensing has been recognized.

It is critical that cost-benefit analyses be conducted to determine the need for regulating certain occupations. This argument is supported by the 2015 Framework for Policymakers report, which recommends that policymakers adopt best practices to "facilitate careful consideration of the costs and benefits of licensure."7 In 2015, the Treasury Department, the Council of Economic Advisors, and the U.S. Department of Labor, under the administration of former President Barack Obama, issued a report laying out the problems with occupational licensing and calling for reform. Similarly, in 2017, the Secretary of Labor under President Donald J. Trump, Alexander Acosta, highlighted the issue and encouraged lawmakers to push for occupational licensing reforms.8

1 National Conference of State Legislatures. (2019). The evolving state of occupational licensing: Research, state policies and trends. 2nd ed.

2 Carpenter, D. M., Sweetland, K., Knepper, L., & McDonald, J. (2017). License to work: A national study of burdens from occupational licensing. Institute for Justice.

3 Carrión-Tavárez, Á., Carpenter II, D. M., & Timmons, E. J. (2024, febrero). Liberar el potencial. Las cargas de las licencias ocupacionales y cómo se pueden reformar en Puerto Rico. Instituto de Libertad Económica. https://doi.org/10.53095/13584010

4 Carpenter, D. M., Knepper, L., Erickson A. C., and Ross J. K. (2012). Arizona profile. License to work: A national study of burdens from occupational licensing. Institute for Justice. https://ij.org/report/license-to-work-3/

5 U.S. Bureau of Labor Statistics. (2016). 2016 data on certifications and licenses. https://www.bls.gov/cps/certifications-and-licenses.htm

6 Carpenter, D. M., Sweetland, K., Knepper, L., & McDonald, J. (2017). License to work: A national study of burdens from occupational licensing. Institute for Justice.

7 Morris K. (2015). Reforming occupational licensing policies. Brookings. https://www.brookings.edu/wp-content/uploads/2016/06/THP_KleinerDiscPaper_final.pdf

8 Department of Labor. (2017, July 21). U.S. secretary of labor Acosta addresses occupational licensing reform [News release]. https://www.dol.gov/newsroom/releases/opa/opa20170721

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