Is the U.S. “Over-Licensed?” The Case for Reforming America’s Professional Licensing Laws

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In recent decades, occupational licensure laws have become ubiquitous in the United States, changing the landscape of the American labor force. Such laws are mostly enacted at the state level and their requirements vary, but they typically require individuals to complete a training program, pass an exam, and pay a fee in order to legally work in a licensed profession. Over the past sixty years, the number of licensed workers in the U.S. has skyrocketed. Economists Morris Kleiner and Alan Krueger estimate that 29 percent of American workers today are licensed, up from only 5 percent of the workforce in the early 1950s.

Academics, members of the media, and policymakers have all paid insufficient attention to this trend. Although the study of professional licensure dates back to Adam Smith, there is a dearth of recent empirical and legal scholarship on the subject. For example, Kleiner and Krueger observe that the three top labor economics journals have featured 21 articles on unionization since 2000, but only 1 article on licensure. A single search for “unions” on the ProQuest National Newspaper Core database yielded 129,580 results, while searches for “occupational licensing”, “occupational licensure” or “occupational licenses” turned up only 143 results in total (including duplicates).  This is the case even though union membership has declined nationwide to only 11.3 percent of the American workforce, meaning that there are nearly three licensed workers for every one unionized one.

Why should we be concerned about the expansion of licensure requirements? Researchers who study this subject have concluded that licensure restricts the supply of labor, thereby reducing competition, driving up the licensed workers’ wages, and increasing the cost of their services to consumers. Using a national survey, Kleiner and Krueger find that licensing is associated with 18 percent higher wages. By preventing unlicensed workers from getting jobs in certain industries, licensure laws enable licensees to charge consumers more and earn higher salaries.

Proponents argue that licensure laws are in the public interest and are necessary to protect the public from potentially disastrous professional incompetence. This argument is not without merit. There are certainly some professions, such as doctors or airplane pilots, where incompetent practitioners could inflict grave damage on the public, and which most people would reasonably conclude should therefore be licensed.

Yet there are numerous other professions, such as movie projector operators, massage therapists, librarians, or shampoo assistants, for which the rationale for licensure is extremely tenuous. It hardly seems likely that the safety risks in allowing unlicensed workers to participate in these professions outweigh the benefits of letting them pursue employment.

Moreover, there are less drastic ways to reduce the scope of licensure than complete deregulation. For example, if legislators think consumers should be able to distinguish between professionals who have passed an official training program and those who have not, they can use certification as an alternative to licensing. (Certification is a less restrictive process than licensure, in which the government still administers a competency exam and certifies those who pass it, but it allows anyone to enter into the profession, regardless of whether or not they have been certified.)

Limiting occupational licensing is one of the rare domestic policy initiatives that could attract bipartisan support. So far, conservatives have seemed more exercised by licensure’s growth than liberals. Media outlets such as The Wall Street Journal and The National Review have decried the trend toward increased licensure, while the libertarian Institute for Justice has sued on behalf of individuals forced to quit their jobs because they lacked the proper license. Yet liberals are expressing interest as well. Alan Krueger, the former Chairman of the Council of Economic Advisers, has co-authored articles on the prevalence and impacts of licensing, and Matthew Yglesias has written several pieces for ThinkProgress, an outlet of the left-leaning Center for American Progress. NPR and The New York Times have recently published investigations into licensure as well.

Yet liberals should be even more disturbed by growth of licensing. Not only is there a strong case that the current level of licensing is inefficient and hurts job growth, but unlike unionization, there is little evidence that increased licensure does anything to reduce inequality. In fact, Kleiner provides reason to think that it may contribute to increased inequality, since it appears to cause a greater relative increase in earnings for people in high-income occupations, while frustrating aspirants’ efforts to enter these occupations.

Any significant policy reforms will be slow and hard-fought, and those professions that benefit from the current state of affairs will undoubtedly oppose deregulation. But journalists, academics, and policymakers would do well to devote more energy to this issue. At the very least, citizens deserve more discussion about the costs and benefits of licensing, so that the public can decide for itself if more licensure is indeed in the public interest.

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