State Reforms of Occupational Licensing

New report from Cato highlights Michigan work

The newest edition of Regulation magazine from the Cato Institute features a piece on licensing co-written by Mackinac Center Director of Marketing and Strategy Jarrett Skorup.

The chapter is titled “The Latest on Occupational Licensing Reform” and notes that “at the federal level and in the state of Michigan, there have been encouraging moves toward market liberalization.” It is co-authored with Thomas Hemphill of the University of Michigan-Flint. An excerpt is below.

STATE LICENSING REFORM

The federal antitrust efforts and proposed legislation are promising, but the vast majority of licensing exists at the state level. The 2015 Obama administration report notes that the typical state licenses some 60 different occupations. Yet there is little evidence of positive effects resulting from such licensing on consumer health and safety.

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Most economic and policy experts from across the ideological spectrum agree that too many occupations are licensed, with results being negative economic effects. Researchers blame state-level licensing for fewer jobs, higher consumer costs, less competition, increased income inequality, and less social and economic mobility, among other negative externalities. Still, little has been done to lessen the licensing burden across the states. The percentage of workers requiring a license has risen from 5% in 1950 to nearly 30% today.

Michigan, however, is becoming an encouraging exception to that trend. Shortly after he took office in 2011, Gov. Rick Snyder established the Office of Regulatory Reinvention (ORR), which in turn created an occupational licensing advisory rules committee to review the nearly 200 occupations in Michigan that require some form of state licensing. In February 2012 the agency released a report calling for reforms to state licensing laws. It suggests changes based among other things on whether a license protects consumers from harm, requires specialized skills or training, and is aligned with state and national standards. The report offers several policy recommendations, including matching the total revenue from fees charged to licensees to the costs the state incurs in overseeing a licensed occupation (as opposed to using the fees as a general revenue source), reviewing the continuing education requirements, and reviewing licensing boards on “necessity, authority, and proper functions.”

Since the release of the ORR report, Michigan has repealed seven license requirements outright. (As a point of comparison, nationwide only about 15 state license requirements have been repealed in recent decades.) These include requirements on dieticians and nutritionists, auctioneers, community planners, oculists, school solicitors, immigration clerical assistants, and interior designers. The state also eliminated a few licensing boards and reduced regulatory requirements in other areas, such as the number of mandated apprenticeship hours required for a barber’s license.

In its current legislative session, the state seems poised to go further with occupational licensing reform. The Michigan House passed a package of bills that would severely reduce licensing requirements for many contractors, including painters, concrete workers, and window and gutter installers. In addition, about a half-dozen other de-licensing bills have been introduced.

Gov. Snyder has made it clear that he does not favor licensing as a regulatory tool. After taking office, he commissioned the ORR report, which led to real policy change, and also sent a letter to Michigan’s House Speaker and Senate majority leader saying he would not approve of new licenses that were not directly related to consumer health and safety. He wrote, “Going forward, we need to continue to exercise diligence and caution in determining whether to impose new regulations or requirements on any occupations—whether previously unregulated or not—and we should enact new restrictions only when they are absolutely necessary to protect the public welfare.”


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