An important plank in Rep. Paul Ryan’s anti-poverty platform released last summer is reforming occupational licensing. This is a proposal with bi-partisan appeal: President Obama’s budget released this week reportedly contains $15 million incentivizing states to streamline rules governing everything from plumbing to teaching and hairdressing.
Morris Kleiner, an economist at the University of Minnesota, said he helped advise Ryan’s team on his proposal, which cites research Kleiner’s research with Alan Krueger, who found licensing is associated with about 18 percent higher wages, meaning these inefficiencies artificially inflate wages and price many workers out of a job.
Kleiner authored a new study at the Brookings Institution estimating occupational licensing rules put a drain on the economy of $203 billion. Low-income families often suffer the most, according to research from The Institute for Justice. From the supply side, the over-regulation particularly harms poorer families because it prevents lower-skilled entrepreneurs from creating new firms. It also hurts poorer consumers because they can’t afford products and services they could have otherwise purchased.
“People who have more money, it’s easier for them to pay the additional amount that a licensed servicer provides, whereas people of lower income either go without or go to some unlicensed provider,” Kleiner said.
In the 1950s, fewer than 5 percent of U.S. workers needed a license for their job. By 2008 that number stood at almost 29 percent.
While certainly the health and safety of consumers is vital, research from Kleiner and others shows that many occupational licensing requirements are unnecessary and uncorrelated with increased safety or quality. Often they are cumbersome and duplicative, particularly when workers or entrepreneurs are attempting to cross state lines.
“Technically it’s more difficult to move in many cases across states than it is to move across countries in the European Union,” Kleiner said.
Military families have faced licensing burdens in particular, with many families having to make cross-state moves. The Department of Defense has worked with the Treasury Department to ensure that states do a better job helping veterans have their military training count toward licensing requirements in areas such as construction, truck driving and EMT services. Military spouses have also faced burdens, a cause highlighted by Michelle Obama. Reportedly, some 73 percent of licensed military spouses have faced renewal or re-issuing of licenses after a cross-country move, according to a study by the Military Officers Association study and Institute for Veterans and Military Families at Syracuse University.
Occupational licensing has snowballed over recent decades: Kleiner reports that in the early 1950s, fewer than 5 percent of U.S. workers were required to have a license from a state government to perform their jobs. However, this grew to almost 29 percent by 2008.
Kleiner pointed out that occupational licensing requirements can also make it difficult for formerly incarcerated individuals to re-enter the workforce.
“A lot of these occupations really the fact that you may have taken drugs at one point may not be as relevant,” Kleiner said. “That precludes individuals since there’s a term of ‘good moral character, that’s defined as not having committed a felony or been in jail. In some cases that’s very appropriate, in other cases less so.”
He also highlighted research that in fields such as nurse practitioner, dental hygienist and even mortgage brokers, the ability to relax occupational licensing requirements has saved consumers money without affecting safety or quality.
Kleiner said the line item from President Obama is unprecedented in a presidential budget, and he hopes it could help jumpstart the reformation process.
“It’s a good start,” Kleiner said. “It likely would have support from someone like Paul Ryan and someone from the Democratic Party as well, especially since this is the first time any administration has put any money to look at this practice that costs the economy millions of jobs and billions of dollars. So I think some credit should be given…hopefully this will get through Congress.”
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Carrie Sheffield is the founder of Bold. She is passionate about storytelling to empower and connect others. A founding POLITICO reporter, Carrie contributed on political economy at Forbes and wrote editorials for The Washington Times. After earning a master’s in public policy from Harvard University, she managed credit risk at Goldman Sachs and researched for Edward Conard, Bain Capital founding partner and American Enterprise Institute scholar. She earned a B.A. in communications at Brigham Young University and completed a Fulbright fellowship in Berlin.