In an occupational licensure scheme, the government requires fees, coursework, training and exams before someone can legally perform a certain job. In Michigan, an estimated 21 percent of workers must hold such a license. By comparison, less than 1 percent of workers earn the minimum wage and only 15 percent belong to labor unions. In other words, state licensing has a larger effect on Michigan than any other labor-related economic issue.
Nationally, licensing has grown dramatically. In 1950, less than 5 percent of workers were licensed; now about 30 percent are. Almost every state licenses doctors, lawyers, dentists, opticians and other technical and specialized occupations. Many of these requirements are similar across the states. But many states also require licenses for a range of other jobs, including auctioneers, court clerks, fishermen, floor sanders, painters, interior designers and tree trimmers. For its part, Michigan licenses about 160 occupations.
Why does the state require occupational licenses? The chief argument is that doing so improves public health and safety. But for the vast majority of occupations the state licenses, there is very little evidence that this is true.
And licensing requirements are often inconsistent in their attempt to protect public safety. Consider the following. The mechanic who fixes the brakes on your car has to pass a single $6 test to legally perform this work. In contrast, a builder who repairs the gutters on your house needs to take 60 hours of classes, pass a test and pay $900 in fees.
Licensing laws are arbitrarily applied, both within Michigan and across the country. There is no consistent concern for public health and safety in the occupations that states license. For instance:
- In Michigan, people must take contracting classes and pay extra fees before they install wood floors (but not carpet or vinyl), pave concrete (but not asphalt), paint a wall (but not put up drywall), hang siding (but not erect a fence) or wreck a house (but not move one).
- Emergency medical technicians need 30 hours of training. Athletic trainers need 1,460 hours of classes and 25 hours a year of continuing education.
- Up until 2013, commercial airline pilots needed 250 hours of flight time. Michigan cosmetologists and funeral directors, however, need 1,500 hours of education and training.
- South Dakota requires 490 days of education and experience, three exams, and minimum grade and age levels for cosmetologists, but Massachusetts requires only 233 days of education and experience and has no age or grade-level requirements.
- Barbers in Nevada need more than three years of school or training (890 days) and have to pass four exams; those in Wyoming need only six months of training and to pass just two exams.
- EMTs need 140 days of education and experience and have to pass two exams in Alaska but need no education or training to work in Washington, D.C.
The economic theory of public choice — “concentrated benefits and diffused costs” — helps explain how licensing laws come about. These laws create concentrated benefits (enjoyed by people who are licensed) and diffuse costs (paid by all consumers). So, the theory goes, this creates a special interest group that will promote and defend these concentrated benefits. But no organized group will oppose the laws, due to the nature of the costs. In other words, the people who benefit the most from these laws care far more about their existence than the rest of us since, individually, we are only minimally harmed (through higher prices).
Another economic theory that applies here is known as “regulatory capture.” In the words of economist George Stigler, who developed this concept, “We propose the general hypothesis: Every industry or occupation that has enough political power to utilize the state will seek to control entry.” Once in place, these regulations are said to be “captured,” because they do not exist to benefit the public, but to benefit those who are regulated.
It is no wonder, therefore, that the people who most adamantly seek and support occupational licensing are the regulated practitioners. A federal government study from the 1960s noted, “Legislatures are being overrun by requests from private interests which beg for the licensing of their occupations.” The problem is the same today, with doctors protecting their licensing requirements, builders defending construction licenses and landscape architects arguing that licensure is the only way their business could function.
What does the economic research say? Well, it is virtually unanimous: State licensing causes less competition, worse service and increased prices — with no discernible public health and safety benefit. The laws are arbitrary, increase income inequality, influence where people choose to live, disproportionally harm lower-income Americans and prevent ex-offenders from rehabilitating back into society.
Morris Kleiner, one of the nation’s leading experts on occupational licensure, writes: “[L]icensing has had an important influence on wage determination, benefits, employment, and prices in ways that impose net costs on society with little improvement to service quality, health, and safety.” And a report from President Obama’s Council of Economic Advisers summarized the research well. “There is evidence,” it said, “that licensing requirements raise the price of goods and services, restrict employment opportunities, and make it more difficult for workers to take their skills across state lines.”
Kleiner, along with Alan Krueger, estimated that the approximately 38 million licensed workers in the United States, with average annual earnings of $41,000, cost the country 2.8 million jobs and $203 billion in higher prices.
Kleiner estimates that in Michigan, licensing laws increase consumer prices by up to 30 percent, cost the state 125,480 jobs and means $10.4 billion in higher prices — $2,700 annually per family. And the state spends over $150 million directly on licensing individual occupations, with $25 million of that coming out of the state’s general fund.
The Declaration of Independence lists the “pursuit of happiness” as one of Americans’ “inalienable rights.” For most, this includes the ability to pursue a vocation of their choice. But for too many people, the right to pursue their dreams has been halted by governments that require them to jump through hoops, pay fees and meet other often arbitrary occupational licensing requirements.