New Study: Excessive Occupational Licensing Hurts State Economy, Reduces Tax Revenue

Share on Facebook
Share on Twitter
Share on
LinkedIn
+

Read media coverage of this report in The Boston Globe and MassLive.

BOSTON — Overly burdensome occupational licensing requirements not only slow down the Massachusetts economy and cost the state tens of thousands of jobs, but also reduce state and local tax revenue, according to a new study published by Pioneer Institute.

“Onerous occupational licensing laws in Massachusetts not only create unnecessary barriers to finding a job, they also impact state and municipal resources,” said Alex Muresianu, author of “How Occupational Licensing Laws Reduce State and Local Tax Revenues: The Public Finance Case for Occupational Licensing Reform.”

Occupational licensing laws have expanded greatly in the past half-century.  In 1950, only 5 percent of the U.S. workforce needed a license to do their jobs. Now, between 25 and 30 percent of workers need a license.

Get Updates on Our Economic Opportunity Research

Occupational licensing laws are usually justified on the grounds that they improve public health, safety, or service quality. But the existing literature on occupational licensing laws finds that these licenses do not always improve public health or consumer welfare.

Instead, overly broad occupational licensing regulations serve to protect those who currently work in an industry from competition by keeping new workers out. Licensing boards impose large fees and expansive education and training requirements inconsistent with the health and safety implications of the job.

As the public interest law firm Institute for Justice noted, Massachusetts requires cosmetologists to undergo 1,000 hours of training and accrue two years of experience to obtain a license. Meanwhile, becoming a state-licensed EMT, a job with a much clearer tie to public health implications, requires just 150 hours of education.

Licensing laws also have numerous indirect economic consequences. They make it harder for ex-convicts to re-enter the workforce, thus increasing crime and recidivism rates. Many states do not recognize licenses granted in other states, which reduces labor mobility, making the labor market less competitive and slowing down wage growth. Several studies have found that these laws increase economic inequality by keeping lower-income people out of these career paths, and have disparate, negative impacts on young people, ethnic minorities, and military spouses.

One of the roadblocks to reforming these regulations is that state governments are often unwilling to give up the revenue stream generated from fees for occupational licenses. However, licensing laws actually reduce state and local tax revenue by preventing more people from working. Slower economic growth means lower income and sales tax revenue.

“By reducing economic growth, occupational licensing laws reduce state and local tax revenues,” said Muresianu. The report found that in 29 of 36 states studied, state and local governments lose more tax revenue from reduced growth than they gain from occupational licensing fees.

There are several policies Massachusetts and other states can implement to reduce licensing burdens. Repealing licensing laws that most other states don’t have, requiring that any new licensing law address a specific public health concern, automatically recognizing all licenses earned in other states, and replacing licenses with voluntary certification programs are all effective approaches the Bay State legislature could consider to reduce the state’s licensing burden.

About the Author

Alex Muresianu was a Pioneer Institute Akin Fellow of Digi­tal Media. He is a Consumer Freedom Fellow at Young Voices, and his writing has appeared in publications such as National Review Online, The Orange County Register, The Kansas City Star, The Detroit News, and The Springfield Republican. He is currently a junior studying economics at Tufts University.

About Pioneer

Pioneer Institute is an independent, non-partisan, privately funded research organization that seeks to improve the quality of life in Massachusetts through civic discourse and intellectually rigorous, data-driven public policy solutions based on free market principles, individual liberty and responsibility, and the ideal of effective, limited and accountable government.

Related Posts

Book Reveals How Tax Hike Amendment Would Damage Commonwealth’s Economic Competitiveness

If adopted, a constitutional amendment to hike state taxes that will appear on the ballot in November could erase the hard-earned progress Massachusetts has achieved toward economic competitiveness over the last 25 years and may not result in any additional education and transportation funding, according to a new book from Pioneer Institute, entitled Back to Taxachusetts?: How the proposed tax amendment would upend one of the nation’s best economies, which is a distillation of two dozen academic studies.

Study Documents The Design Challenges, Contracting Issues, And Delays Facing New MBTA Fare Collection System

This new study unearths previously unseen communications between the MBTA and its contractors, showing that the MBTA’s efforts to modernize its fare collection system, including allowing payments with credit cards and bringing “tap and go” technology to Commuter Rail and ferry lines, was riddled with technological challenges and difficulties overseeing contractors as early as 2019, culminating in a 3-year delay to the project’s full implementation.

Study: Legislature Likely to Reduce Spending on Education and Transportation from Other Revenue Sources, Replace Cuts with Surtax Money

Revenue from a ballot initiative to amend the state Constitution and raise income taxes on households and businesses by adopting a graduated income tax structure would supposedly provide resources for transportation and public education, but a new study published by Pioneer Institute finds that, were the tax amendment to pass, the money would be fungible and much of it likely spent on general budget measures.   

Study Finds Bus Rapid Transit Can Offer Cost-Effective Benefits

Bus rapid transit (BRT) incorporates unique features such as dedicated lanes to provide reliable and cost-effective service while reducing congestion and its detrimental environmental impacts, according to a new study published by Pioneer Institute.

Pioneer Supports Legal Challenge to Misleading Tax Ballot Language, Releases Video

Pioneer Institute supports the diverse and bipartisan group that filed a complaint with the Massachusetts Supreme Judicial Court (SJC) challenging the summary language meant to provide an accurate description of the tax hike amendment to voters. The language was approved by the Attorney General and Secretary of the Commonwealth when a similar amendment was proposed in 2018, and unless the lawsuit is successful, will likely appear on the Massachusetts ballot in November.

Study Raises Concern That Annual T Fare Evasion Costs Could Rise By More Than $30 Million Under AFC 2.0

According to the Federal Transit Administration (FTA), the MBTA’s $935.4 million fare collection system (AFC 2.0) that is scheduled to be implemented in 2023 will reduce fare evasion by $35 million over a decade. But the T announced in 2021 that evasion could actually increase by up to $30 million under AFC 2.0, and now a Pioneer Institute study warns that insufficient fare enforcement could drive that figure even higher under the new system.