When Licensing Has Gone Too Far

License requirements are intended to improve the safety of services like nail salons. But in many other professions, the negative effects of licensing can outweigh the positive.
May 2015
Barrett and Greene
By Katherine Barrett & Richard Greene  |  Columnists
Government management experts. Their website is greenebarrett.com.

Hard to believe but true: The licensing of occupations has only become a common phenomenon post World War II. Thirty percent of U.S. workers now earn their living at professions that states license. Sixty years ago, that number was closer to 5 percent.

The range of professions for which licenses are required, according to the Institute for Justice, runs from the obvious to the nearly inexplicable. For example, most states require licensing for school bus drivers, skin care specialists and barbers. Those make sense. There are health and safety issues at stake for people who utilize the services provided by these occupations. “Physicians or other professions who have the ability to abuse their powers should be licensed,” Adam Berry, regulatory policy director for Indiana, told us. “This is generally true for health-related practitioners.”

However, it’s a little difficult to see whose health and safety is being preserved by licensing court clerks, upholsterers, tree trimmers, auctioneers, shampooers and make-up artists. We’ve yet to run across an upholsterer who had much opportunity to abuse his position in society. Yet all these professions require licensing in at least one state.

In states that are inclined to “over-license,” there is a clear connection between these requirements and a diminishment of economic vitality. “By making it more difficult to enter an occupation,” points out Morris M. Kleiner of the Humphrey School of Public Affairs at the University of Minnesota, “licensing can [negatively] affect employment.”

Kleiner, a national authority on this topic, tells us that economic studies have shown that there are far more occupations that require licensing in which employment is reduced and costs to consumers are increased than cases where quality and safety are provably improved.

What’s more, licensing requirements limit the mobility of skilled workers into a state. Why move if you’re going to have to take hundreds of hours of classes to get the license necessary to ply your trade? If someone has been a florist in a state where there’s no requirement for a license to sell flowers, why should he or she consider moving to a state where it could take months before getting the documentation necessary to peddle petunias again?

Licensing has become popular for a few reasons. For one thing, it doesn’t cost a state anything to require it. The licensing fees cover the costs to the state of expanding capacity to provide testing and issue licenses. In addition, the licensing fees can provide extra cash to the state.

But the simple economics of the situation aren’t the biggest underlying driver for licensed occupations. It’s the members of the professions themselves -- backed by membership organizations -- that are the primary constituency. Call it the “I’ve Got Mine, Joe” syndrome. Once someone has entered any profession, what could be better than limiting the number of new entrants? As Kleiner describes the mindset of men and women in occupations that push for licensing, “The free market is good for everyone else. But I don’t want to work in a free market.”

A few states have recognized the problems with too much licensing, notably Michigan, where the legislature -- led by a gubernatorial initiative -- has passed bills delicensing seven professions in the last year or so: auctioneers, community planners, dietitians and nutritionists, immigration clerical assistants, interior designers, the people who recruit for trade schools, and ocularists (those are the men and women who create prosthetic eyeballs). The executive branch is continuing down that route by making an effort to persuade the legislature that still more occupations should be delicensed.

Michigan had good reason to head down this path. With an economy that has suffered some of the greatest fiscal woes of the 50 states, Gov. Rick Snyder was influenced by a 2007 Reason Foundation study that found there was a 20 percent negative impact on the rate of growth of professions that were licensed, according to Kevin Elsenheimer, chief deputy director of the Michigan Department of Licensing and Regulatory Affairs.

Indiana Gov. Mike Pence, meanwhile, has seen a similar light. In 2013, he vetoed two separate bills that would have required licensing for diabetes educators, dietitians and anesthesiologist assistants. You might think that anesthesiologist assistants would fall in the group of health-care-related professions we mentioned earlier. But the people in these jobs aren’t able to make a single move without being overseen by a highly credentialed anesthesiologist.

Pence is now taking another step forward, pushing an alternative to licensing: self-certification regulation. This would allow professionals in fields that do not already require a license to get a certificate from a recognized accrediting body. The certificate would indicate to the public that the individual had achieved a level of expertise.

Certification wouldn’t be mandated; people who lacked it could still fill those jobs. The public could then make its own choice. “This is really a novel concept, and it has gotten attention by some of the leading experts,” says Berry, Indiana’s regulatory director. As he predicts, “They are going to advocate for similar regulatory structures in other states.”