Reasons to reform the occupational licensing system

Today more Americans than ever are working in occupations that require an occupational license.1 The increase in occupational regulations has called into question whether this practice is in the best interest of the U.S. workforce. The shortage of jobs has prompted states to push for reform of the occupational licensing system.2 This reform initiative has been led by think tanks, governors, and the Barack Obama and Donald J. Trump administrations.3

In the 1950s, about 5% of U.S. workers held an occupational license.4 In 2018, approximately 22% of the U.S. workforce had an occupational license to work.5 The percentage of licensed workers varies from state to state, as the requirements and processes for obtaining an occupational license for the same job can change in each state. This lack of uniformity among states makes it difficult for people with occupational licenses to move to other states and practice their trade without limitations using a system of "reciprocity," in other words, making licensing requirements uniform across states.

One of the biggest problems with occupational regulation is when jobs are regulated in an onerous, capricious, and arbitrary manner. Sometimes, special interest groups influence government regulations to control supply to sustain and raise prices. Sometimes, even the interest groups are appointed to the review boards that administer the relevant occupational regulation and make determinations about the burden of regulation. Thus, significant barriers and costs are imposed on workers, employees, employers, and the economy in general without generating measurable benefits for society.6

Other problems are that some of the regulated occupations have different requirements, for example, training, in the various states, and the fact that licensing requirements are not always aligned with the purpose of public health and safety.7 A report published by the Institute for Justice in 2018 found that occupational licensing came at a cost of about two million jobs in the United States. The monetary cost of licensing was between $6.2 and $7.1 billion, and misallocated resources following licensing were estimated to cost nationally between $184 and $197 billion annually.

The report A Look at Occupational Licensing Reform Across the United States of the Arkansas Center for Research in Economics (ACRE) describes how states such as Michigan, Arizona, Florida, Utah, and Nebraska, among others, have already implemented occupational licensing reforms; for example, Michigan created an occupational licensing rules advisory committee that evaluated 87 occupations. Six of the occupations evaluated were eliminated, and the hours for barber licensing were reduced. Among the licenses the committee recommended eliminating were acupuncturist, dietician and nutritionist, community planner, and auctioneer.

For his part, former Arizona Governor Doug Ducey called for reform of the occupational licensing system. As a result of the work done by the state legislature, five licenses were eliminated, a government review requirement for licensing mandates was established, and the Right to Earn a Living Act was passed, creating a cause for challenging occupational regulations.8 In addition, since 2015, 39 states have reformed their occupational licensing laws to make it easier for ex-offenders to obtain employment in regulated occupations.9

Puerto Rico has not yet implemented a reform like the previous one. Legislators are the ones who have the tools at their disposal to carry out these reforms and reduce unemployment. They can facilitate the periodic review of the requirements of existing and proposed laws in light of their public health and safety benefits and risks, propose strategies or principled guidelines to improve the approach to occupational regulations, and establish and modify licensing requirements for specific occupations.10 The second edition of the report The Evolving State of Occupational Licensing Research, State Policies and Trends de la National Conference of State Legislatures (NCSL) discusses how state policy makers have taken an active role in the occupational licensing reform process with the goal of boosting economic growth and employment opportunities.

In 2017, the Department of Labor's Employment and Training Administration awarded funding to NCSL for a three-year project to ensure that licensing requirements were not overly complex and to improve the interstate portability of some occupational licenses.11 The occupational licensing project brought together 16 states (Arkansas, Colorado, Connecticut, North Dakota, Delaware, Idaho, Illinois, Indiana, Kentucky, Maryland, Nevada, New Hampshire, Oklahoma, Utah, Vermont, Wisconsin, North Dakota, and North Dakota) to form a learning and technical assistance consortium to study and propose reforms.

Research has shown that occupational licensing often fails to meet the intent of ensuring the quality of service, safety, and public health of individuals. It is essential, therefore, that the problems generated by the occupational regulatory system be addressed.

1 Arkansas Center for Research in Economics. (2018). A look at occupational licensing reform across the United States. University of Central Arkansas.

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

3 Arkansas Center for Research in Economics. (2018).

4 Nunn, R. (2016). Occupational licensing and American workers. The Hamilton Project.

5 U.S. Bureau of Labor Statistics. (2019). 2018 data on certification and licenses.

6 Arkansas Center for Research in Economics. (2018).

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

8 Arkansas Center for Research in Economics. (2018).

9 Institute for Justice. (s.f.). State occupational licensing reforms for workers with criminal records.

10 Arkansas Center for Research in Economics. (2018).

11 National Conference of State Legislatures. (2019).

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