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Friday, July 13, 2018

Occupational Licensing Reform: A Bipartisan Blueprint for Helping Low-Income Workers

Occupational licensing lowers social mobility, obstructing people born into low-income households from entering the middle class.

A new report from the University of Wisconsin-Madison comparing employment between Minnesota and Wisconsin after Minnesota raised its minimum wage found that Minnesotan workers saw a decline in employment, especially for young, inexperienced, and low-skilled workers, as employment in Wisconsin rose. Despite this evidence reaffirming that the minimum wage can hurt many low-income workers, a $15 an hour minimum wage remains a popular position among progressives, including the rising democratic socialist star and primary upset winner Alexandria Ocasio-Cortes. In light of this push, conservatives need to do more than just rebut progressive arguments for minimum wage hikes or job guarantees. We need to push for a compelling alternative that can raise low-income workers’ wages: occupational licensing reform.

Jobs such as florists, interior decorators, and hair braiders can require licenses in certain states.

Occupational licensing is a form of government regulation that requires workers to obtain a license before they can provide a service. The process for getting a license can be time-consuming and expensive, requiring fees in excess of $1,000, hundreds of hours of training, or even a college degree. Occupational licensing has exploded over the past half-century. In the 1950s, only five percent of jobs required licenses—now almost 30 percent of jobs do. Doctors and lawyers are not the only positions that require licenses: over 8,000 job titles require licenses in at least one state, including jobs such as florists, interior decorators, hair braiders, and (perhaps most bizarrely) fortune tellers.

Proponents of licensing requirements justify them by invoking public health concerns, but this explanation falls apart under scrutiny. Two-thirds of the growth in occupational licenses has been in fields that never required them before. Furthermore, many professions require licenses in some states but not others, and there is often no clear distinction in quality of service or safety between the licensed and unlicensed service.

The real reason occupational licensing has expanded so much over the past few decades is that established players in various professions saw that creating licensing requirements would reduce competition and allow them to charge higher prices: licensed workers see a 15 percent increase in pay.

However, that increase in compensation comes at the expense of the rest of society: occupational licensing results in $203 billion dollars of net economic losses every year, and 2.85 million fewer jobs. The expensive and time-consuming process for getting licensed impacts low-income people the most because many are unable to pay licensing fees and lack time for excessive training requirements. For that reason, occupational licensing lowers social mobility, obstructing people born into low-income households from entering the middle class.

A massive rollback of occupational licensing (starting at a state level, although the federal government can have some involvement) would lead to significant wage increases for the lower half of the income spectrum. In 2016, the bottom 40 percent of earners made only 11.4 percent of total household income, or roughly $970 billion dollars. Occupational licensing disproportionately burdens low-income people, by both keeping them out of the job market and by raising the cost of important services. If we assume half of the $203 billion dollar economic costs of occupational licensing fall on the bottom 40 percent of households, that translates to real income increases of roughly 10 percent in an economy free of occupational licensing burdens.

This policy hurts already financially struggling individuals and pushes them further into debt

Occupational licensing reform not only achieves the goal of the Fight for $15 campaign—better wages—but also dovetails on several other progressive causes. As the nonpartisan R Street Institute noted, 18 states can revoke occupational licenses for “individuals who fall behind on their student loans.” This policy hurts already financially struggling individuals and pushes them further into debt—repealing those requirements would help address the student loan crisis.

Similarly, occupational licensing is a criminal justice issue: Many states have “blanket bans” on ex-criminals obtaining licenses, while others use “good character” requirements that allow licensing boards to arbitrarily exclude ex-criminals. These laws make it harder for people out of prison to adjust to society, and therefore make it more likely that people re-enter the prison system. Furthermore, jobs that currently require occupational licenses are not likely to be automated soon, making reforming occupational licensing a key strategy in shaping the future of work.

Furthermore, occupational licensing does not have to be a partisan issue—the Obama administration released a roadmap for reforming occupational licensing laws. Making it easier for low-income people to start businesses by loosening burdensome regulations appeals to progressives as much as it appeals to conservatives and libertarians. Occupational licensing reform is more than good economic policy: it forms a crucial plank of any market-oriented plan to address the problems drawing people to progressive policy positions.

  • Alex Muresianu is a Young Voices Advocate studying economics at Tufts University. He is a columnist at Lone Conservative and his writing has been featured at The Federalist and The Washington Examiner. Find him on Twitter.