Occupational licensing exacerbates income inequality.
Research finds that licensing and other occupational regulations redistribute income from lower-earning consumers to higher-earning workers and limit social mobility.[*]For example, a working paper from Kleiner and Dr. Evgeny Vorotnikov shows that licensing can increase earnings of licensed individuals by an average of 9.6 percent nationwide. But this wage premium is not enjoyed equally across the income distribution — higher-wage earners benefit significantly more than lower-wage earners. They write:
[I]ndividuals in the lowest part of the income distribution — manicurists, for example — are associated with a gain only 3.6 to 5.6 percent due to licensing, but those in the middle of the income distribution gain 7 to 8 percent. Further, those individuals in the top 30 percent of the income distribution gain 11 to 23 percent. ... The results suggest that licensing exacerbates relative income inequality, since higher wage occupations tend to gain more from the regulation relative to lower wage ones.
Many of the occupations that states require licenses for are good employment options for generally unskilled or uneducated workers, who disproportionately make up the lower portions of the income distribution. This means that the government is putting up roadblocks for the very people who have the greatest need of steady employment.
For instance, while barbers in Michigan earn a median annual salary of only $24,600, the state requires 1,800 hours of education that can cost more than $13,000, continuing education, and $240 in fees and exam costs. Cosmetologists earn a median annual salary of just $27,800, but are required to complete 1,500 hours of education, continuing training, and pay $200 for fees and exams. Manicurists and estheticians (skin care specialists) earn a median annual salary of about $30,000, but first must do 400 hours of training, meet continuing training requirements and pay $200 for fees and exams.
Another recent study from the Cato Institute, a nonpartisan, libertarian think tank based in Washington, D.C., found that licensing mandates are particularly harmful to lower-income citizens and affect where people choose to live.
The report notes that more than half of states require licenses for working class occupations which few would describe as dangerous, such as auctioneer, makeup artist, cosmetologist, barber, taxidermist and massage therapist. The authors summarize the evidence which shows that people who work in these (often) lower-income occupations will move when faced with these barriers, though at a pretty significant cost. The authors write:
We find that noncollege-educated residents appear to migrate toward states with fewer occupational licenses. States with a 10 percent lower relative number of occupational licensees experience a 6.5 percent higher in-migration rate for individuals without a college education.
[*]For examples of research along these lines, see: Abigail Wozniak, “Are College Graduates More Responsive to Distant Labor Market Opportunities?,” Journal of Human Resources 45, no. 3 (2010): 944–970, https://perma.cc/762X-T8DR; Morris M. Kleiner, Robert S. Gay and Karen Greene, “Barriers to Labor Migration: The Case of Occupational Licensings,” Industrial Relations 21, no. 3 (Sept. 1982): 383–391; Stephen Slivinsky, “Bootstraps Tangled in Red Tape: How State Occupational Licensing Hinders Low-Income Enterpreneurship” (Goldwater Institute, Feb. 23, 2015), https://perma.cc/XY96-BQZA.