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Wednesday, April 17, 2019

Arizona Takes Unprecedented Step on the Long Road to Occupational Freedom

Decentralizing the process and letting the market guide resources is not a call for chaos: It is a call for better regulation.

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In an unprecedented move, Arizona has become the first state to recognize occupational licenses from every state. As ABC 15 first reported, Governor Doug Ducey signed the legislation last Wednesday in an effort to reduce the cost for skilled workers to enter Arizona. Governor Ducey told reporters,

You don’t lose your skills simply because you pack up a U-Haul truck and make the decision to move to Arizona.

But not everyone has supported Governor Ducey’s decision. Critics have expressed concern that workers from states with lax requirements will flood in. Representative Pamela Powers Hannley went so far as to ask, “[Why] should we dumb down our standards when it’s really not necessary to build up the workforce?”

Is it this black and white? Have states become so adept at certification that one license could apply in all states as this legislation suggests? Or are modern industries so fragmented and specialized to specific state needs that a Maryland worker could never perform their job safely in Arizona?

If presented with these questions, I would have to say no to all of them, but let’s take these issues one at a time.

One License to Rule Them All?

Although I refute the efficiency of a universal license, Governor Ducey has done both present and future citizens a great service by increasing their opportunities. This I do not deny. With the doors open to skilled talent, shortages can now be filled and prices can be expected to reduce. Further, it sets a precedent for removing further barriers to trade both in Arizona and the nation at large. However, there is a subtle point worth making.

Government regulation of occupations does act to filter the labor force. Yet, is it effective? Is it efficient? And to what end? Arizona cosmetology licenses only require a $60.00 fee for renewal. Does this guarantee a cosmetologist is maintaining quality services? Furthermore, if critics are correct and their state has the highest standards, wouldn’t a universal license benefit the nation if it increased the requirements for all?

In light of these questions, a universal government license has a number of issues. Defining standards would be no easy feat either.

In light of these questions, a universal government license has a number of issues. Let’s make the hard case and assume government licenses are only issued to assure quality (a.k.a. the No Crony Assumption).

First, even though labor mobility will be able to drastically increase, labor shortages will still exist in government-licensed occupations. This occurs because the industry itself is still surrounded by a barrier to entry. Second, the license certifies an initial minimum requirement, but it does not certify ongoing ability. Workers of all skill levels are simply dumped into the neighboring abysses that are “The Licensed” and “The Unlicensed.” Last, defining standards would be no easy feat either. The best test to filter applicants, the most real-world relevant test, and the highest standard test can all be very different processes with very different results.

Segregated or Integrated?

So, if a universal government license has so many potential issues and is out of reach as critics suggest, is this because states are so fragmented that they could never account for each other’s unique needs?

No, the modern world is more integrated than ever before. Technology has collapsed both time and space such that international business has become the norm. Occupational licenses decrease opportunities by limiting worker mobility. Mom and pop shops sell to every corner of the world despite a journey like the Silk Road once taking up to two years to complete. With deliveries measured down to the hour, information taking mere minutes to locate, and phone calls taking seconds, any bridge can easily be crossed in the modern world.

In such a state of integration, occupational licenses decrease opportunities by limiting worker mobility despite increased potential. A hair stylist could make appointments at the homes of clients and perform a mobile, on-demand service. However, said service could only cross state lines (legally) if the person providing them held multiple government licenses. Without said government licenses, customers have fewer options for service, and our hair stylist has fewer options for income.

A Third Option

In pursuit of separate ends, both sides have provided the tools to argue for a third option: decentralizing the certification process.
All people desire regularity. It provides comfort in expectation and the ability to plan. Yet a government license only certifies ability at the date of examination, not current ability. Further, this ability is defined by some unknown set of factors (e.g. an applicant filter versus real-world applicability versus highest standards). This leaves consumers in a sort of grey zone, which is blurred even further when state representatives suggest other states have a “dumbed down” standard for their workforce.

Rather than implementing a universal government license or segregating the states, decentralizing the certification process is an option that provides a solution to these issues.

Decentralizing the process and letting the market guide resources is not a call for chaos: It is a call for better regulation.

Review services (e.g. Yelp, Google Review, Amazon, Facebook Review) provide not just a certificate of current ability in each review but also a grading of all services relative to others such that the abysses of “Licensed” and “Unlicensed” are replaced with an observable range of ability. In effect, workers are encouraged to improve. Furthermore, the grey zone of certification requirements is replaced with clear expectations. The 1-star review from the man who bought pens listed with blue ink when he wanted black ink and the 5-star review from the spam-bot can both be similarly discounted. In effect, the process encourages a more informed market.

Decentralizing the process and letting the market guide resources is not a call for chaos: It is a call for better regulation. With this legislation, Governor Ducey has taken Arizona a step in the right direction towards occupational freedom, but there is still a long road to travel.

  • Nicholas Anthony is the Manager of the Cato Institute's Center for Monetary and Financial Alternatives.Originally from Baltimore, Maryland, he received a Bachelor's Degree in Economics and Business Administration from Towson University, and a Master's Degree in Economics from George Mason University.