Occupational licensing requirements create barriers to entry that keep many Americans from starting businesses or earning a living. But some states are starting to rethink licensing.
Juan Montesdeoca did the unthinkable in the eyes of the Arizona State Board of Cosmetology: he gave free haircuts to Tucson’s homeless population…without a cosmetology license and outside a licensed salon. Someone complained to the state agency, who opened an investigation into Montesdeoca – one that could deny him his cosmetology license before he even applies for it. Donna Aune, executive director of the state agency said the language of the statue “speaks plainly” and that Montesdeoca and his scissors are a “real risk” to public health and safety.
After Montesdeoca took his story public, Arizona governor Doug Ducey sent the board a letter and the agency backed down. In March, Gov. Ducey issued an executive order to state agencies, requiring them to report their minimal requirements for an occupational license and having them explain licensing requirements that exceed national averages in terms of “specific reference to potential harm to individual Arizonans.” On March 30, Gov. Ducey signed into law SB1437, known as the “Right to Earn a Living Act.” The act limits Arizona’s regulatory boards from issuing regulations that “on their face or in their effect limit…entry into a profession or trade.”
It’s not just Arizona that notices a problem with licensing regulations. A report put out by the Obama administration in 2015 noted that more than 25% of American workers now require a license to do their job, a five-fold increase since the 1950s. The report found that licensing requirements can improve quality of service, but it also reduces the total employment in licensed professions and can raise the prices of such services 3-16%.
There’s also a disparity in regulations. One state regulates 1,100 occupations, but fewer than 60 are regulated in all 50 states; in Michigan it takes three years to become a licensed security guard while most other states only require 11 days or less. In South Dakota, Iowa, and Nebraska, someone looking to become a licensed cosmetologist will need 16 months of education, but aspiring cosmetologists in New York and Massachusetts will spend half that amount of time. Licensing requirements also often do not accept online or long-distance learning to fulfill continuing education requirements, and may prohibit workers from telecommuting or otherwise working remotely, something the report says is “inhibiting innovation.”
On top of the education and time requirements for licensing, there are costs associated with obtaining licenses, some of which can be prohibitive to those seeking the license and impact the cost of living for everyone else. In a report from the Heritage Foundation, it’s estimated that occupational licensing costs Americans $127 billion annually and forcing the average household to spend an additional $1,033 because licensing limits competition. In 2015, The Institute for Justice took on the case of Aicheria Bell and Achan Agit, two African-style hair braiders in Iowa. The state requires them to undergo 2,100 hours of cosmetology training which can cost over $20,000, despite cosmetology schools not being required to teach African-style hair braiding (it doesn’t involve dangerous chemicals). Braiding hair without a license is also punishable by up to a year in prison and fines up to $10,000.
On the consumer end, New Jersey is currently looking at legislation that would make it illegal to drain your own backyard swimming pool without a license. Licensees must be “of good moral character”, according to the legislation, which is interesting considering Lawrence Caniglia of the Northeast Spa and Pool Association has said his group’s support of the legislation is driven purely by a desire to be able to charge people more for their services. This is also interesting because the Obama administration report notes that people with criminal backgrounds can be denied licenses even if their convictions are wholly unrelated to the field(s) in which they seek licensure.
Fee.org goes further and calls occupational licensing a scam, and cites several examples of government cronyism and revenue-generating to prove its case:
- In 2014, Mats Järlström successfully challenged Oregon’s red-light cameras by questioning the timing of the yellow lights. Järlström, who has a degree in electrical engineering from Sweden, was then threatened by the Oregon State Board of Examiners for Engineering and fined $500 for practicing engineering without being registered.
- In Wisconsin, sign language interpreters must be licensed, just one of the 166 occupations requiring licensure…up from 90 in 1996, or an 84% increase. Estimates say licensing has cost the state 30,000 jobs and an additional $1.9 billion in consumer expenses.
- In Colorado, dog walkers must register as a licensed kennel, a costly requirement that stifles competition.
- In the aforementioned Arizona, three women spent three years fighting a regulation that required them – animal massage practitioners – to obtain a veterinary license, at an expense of up to $250,000.
Licensing requirements are a burden, especially on the poor seeking work opportunities and on working families looking to lower their costs for goods and services. They encourage cronyism, favoritism, and limit competition – which drives up prices and gives government even more control over the lives of citizens.
The good news is not only has Arizona sought to reform occupational licensing, Mississippi has as well. Governor Phil Bryant signed legislation in April that brings licensing boards under direct supervision of the governor, secretary of state, and attorney general and subjects new licensing requirements to veto by any of those persons. 23% of Mississippians need a license to work, and low- or middle-income occupations often require 155 days of training and $200 or more in fees.
And the acting head of the Federal Trade Commission (FTC), Maureen K. Ohlhausen, has chimed in too, saying The health and safety arguments about why these occupations need to be licensed range from dubious to ridiculous. “I challenge anyone to explain why the state has a legitimate interest in protecting the public from rogue interior designers carpet-bombing living rooms with ugly throw pillows.”
Ohlhausen notes this is an issue even with the Department of Defense, as there’s a high unemployment rate for military spouses and licensing requirements can often prevent them from obtaining a license to work as they move from state to state. Ohlhausen wants to work with state governors and legislatures to reform requirements before the FTC takes drastic measures like taking licensing groups to court, and is blunt in her assessment as to why reform is needed: “The proliferation of unnecessary and overbroad occupational licensing regimes not only burdens consumers and the economy, it hurts many average Americans who want to enter these occupations. One study estimated [unnecessary occupational licenses] cost the economy 3 million jobs and $200 billion in higher costs for consumers.”