In a time of low unemployment and worker shortages, some states are implementing reforms to reduce barriers to entering the labor force. One such barrier that has garnered significant attention in recent years is the proliferation of occupational licenses, which, in theory, seek to regulate hazardous professions to benefit consumers through increased quality and safety.
In 1950, only 5 percent of the U.S. workforce needed a license to perform their jobs. Today, between 25 and 30 percent of workers do.
While it can be argued that many of these licensing barriers may be just and necessary for certain professions, especially the medical fields, when used for occupations like shampooing or fortune telling, the benefits are questionable.
In fact, licensing for many professions squeezes the supply of services, artificially inflating prices and creating wage premiums. One study from the Institute for Justice put the wage premium relative to an environment without any occupational licensing at a whopping 22 percent in Massachusetts.
State governments are not incentivized to loosen license requirements, as they bring in significant fee revenue. However, a 2019 Pioneer study found that revenue was dubious and states should reconsider. The negative economic costs of occupational licensing actually shrink the overall business, sales, and personal income tax base in 29 of the 36 states that were modeled in the study.
Additionally, many licensing requirements, including fees, education and training, often appear to be inconsistently applied and at odds with promoting health and safety on the job.
For example, if you wanted to become a cosmetologist or a barber in Massachusetts you would be required to undergo 1000 training hours and have two years experience. However, if you wanted to become an EMT, you would only be required to have 150 hours of education.
Licensing approval can also be complex, requiring applicants to interact with several agencies, multiple in-person meetings, and substantial paperwork. In addition to fees, these barriers cause a significant loss of time for workers, often taking months to resolve.
The State of Reforms
Labor shortages and inflation have persistently impeded economic growth in much of the country. The burdensome regulatory licensing process has been recognized by some states as a factor in exacerbating slow growth, and, accordingly, propelled reform. In March, for instance, New Hampshire Governor Chris Sununu’s budget proposal included a call for licensing reform, emphasizing that the reforms would break down regulatory barriers, lower the cost of entry to doing business, and increase free-market competition and economic freedom.
The budget proposal, if enacted, would eliminate 692 unnecessary statutory provisions, 14 unnecessary regulatory boards, and 34 license types. Licensing time frames would be standardized for all professionals as a means of eliminating administrative burdens and ensuring that everyone who applies for a license receives it in a timely manner. At the same time, universal recognition of licensed professionals in other states would be established, making it simpler to relocate and join the workforce.
Other states have implemented similar reforms, with a list that has been growing in length every year since 2016.
One reform that experts say is critical for drawing new talent from other states is making licensing universal. In other words, recognizing out-of-state licenses as valid in order to make it easier for licensed professionals to migrate without having to go through a new lengthy application process.
To date, 20 states have implemented a reform along these lines, including neighbors Vermont and New Hampshire. Five of those states also recognize experience as a substitute for a license if the state the individual is migrating from doesn’t require one.
States are also introducing other reforms that are similar to New Hampshire, eliminating superfluous licenses, concentrating the application processes in fewer departments and regulatory boards, and streamlining the number of steps and time it takes for applicants to get through the process.
Pioneer’s 2019 report advocated for more Massachusetts-specific recommendations, including repealing the policy that allows occupational licenses to be suspended for student loan defaults, eliminating all licenses that don’t have any education or training requirements, mandating that new occupational laws be supported by evidence proving the license will improve public safety, and by replacing mandatory licenses with voluntary or private certification.
Certification reforms would be the best compromise for the state if it doesn’t seek to eliminate some licenses altogether. By transitioning to certifications, professionals would be free to pursue them but not mandated to do so, eliminating barriers to entry and freeing up economic resources.
It would also provide individual consumers with the ability to choose where they take their business. If a consumer is concerned about safety when visiting their barber, they would be empowered to go to a barber who has been certified with the state as opposed to an uncertified one.
Ultimately, to make the state more competitive, reduce inflated prices from a limited supply of services in licensed professions, and increase the mobility of workers in Massachusetts, state policy makers should seriously consider occupational licensing reform.
As employers struggle to hire workers, with more than two jobs for every unemployed person in the state, reducing the occupational licensing burden could increase employment for certain occupations and stimulate economic development by allowing better allocation of workers and their skills. It could also increase Massachusetts’ attractiveness to workers looking to relocate, and create additional revenue for the state from increased economic activity.
Not only is reform necessary from an economic and workforce standpoint, but also from a fairness perspective. Occupational licenses pose an undue burden for workers, especially when applied to low-skill professions, and are often only thinly veiled attempts by established professionals and lobbying organizations to prevent additional workers from entering their fields.
Massachusetts would do well to take notice of other states in the region that are seeking to make reforms and consider taking steps to cut red tape and reduce burdens on workers in order to stay competitive.
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About the Author
Aidan Enright is Pioneer’s economic research associate, responsible for analyzing data and developing reports on the state’s business climate and economic opportunity. Prior to working at Pioneer, he worked as a tutor and mentor in a Providence city school and was an intern for a U.S. Senator and the RI Department of Administration. Aidan earned a Bachelor of Arts in Political Science and Economics with a concentration in U.S. national politics from the College of Wooster.