Occupational Licensing Benefits Insiders, Shortchanges Millennials

Getty Images/Valentin Casarsa

Jesse Hathaway Research Fellow, Heartland Institute
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North Carolina lawmakers recently backed away from a proposed bill that would have reformed the state’s occupational licensing laws. In testimony given before the state legislature’s Joint Legislative Administrative Procedure Oversight Committee, lobbyists convinced lawmakers to ditch plans to eliminate government licensing requirements for a dozen occupations and consolidate government licensing boards. The lobbyists argued removing government restrictions on occupations such as acupuncturists and athletic trainers would have endangered consumers’ health.

Contrary to the claims made by many current industry leaders, there is little economic evidence to suggest there is a connection between the number of “government permission slips” and public health or safety. Instead of protecting consumers from apparently dangerous fitness trainers, for example, occupational licensing regulations often serve to protect the financial interests of established businesses in the regulated field, shortchanging new job-seekers, especially younger Americans.

According to the U.S. Census Bureau, almost 40 percent of the nation’s current unemployed population were born between 1982 and 1994. These “Millennials” are being kept out of the workforce by policies enacted by and benefitting preceding generations, including occupational licensing regulations.

Across the nation, thousands of occupations require obtaining permission from the government before one can start working in his or her dream job or starting a business. For example, Florida millennials with a knack for home décor must spend $1,200 to take a National Council of Interior Design Qualification test, which is taken over the course of two full days, plus they must pay $150 to the state Board of Architecture and Interior Design, comprised of eight industry representatives and only three members of the general public, for the privilege of asking for permission to join the state’s guild.

Instead of protecting consumers from rogue interior decorators, these laws actually raise the barrier to entry, restricting supply and inflating consumer prices.

In 2015, Morris Kleiner, a professor of public affairs at the University of Minnesota and a chair in labor policy for the AFL-CIO, examined how occupational licensing laws actually influenced the quality of products and services provided to consumers and the effect these laws have on employment. Kleiner says occupational licensing laws unnecessarily harm consumers by increasing prices of goods and services—all without providing corresponding increases in quality.

“[O]ccupational licensing transfers income from consumers (in the form of higher prices) to licensed workers (in the form of higher wages) with no apparent impact on reducing variations in earnings,” Kleiner wrote for The Hamilton Project. “In fact, standard economic models imply that the restrictions from occupational licensing can result in up to 2.85 million fewer jobs nationwide, with an annual cost to consumers of $203 billion. In addition, evidence suggests that occupational licensing can result in a loss in overall output of about 0.1 percent of annual consumption expenditures.”

According to data from the Bureau of Labor Statistics, 8.4 percent of individuals between the ages of 20 and 24, people starting their working careers, are unemployed. By contrast, “Baby Boomers”—those in their 50s and beyond and are well-established in their careers—enjoy a very low unemployment rate of 3.9 percent.

Instead of continuing on the current course of making policies that benefit the advantaged and well-connected, lawmakers should work to knock down the barriers keeping the next generation out of work by trimming occupational licensing laws and reducing regulatory burdens. By eliminating policies that require people to ask crony insiders and government bureaucrats for permission to work, lawmakers can help people achieve their dreams and lower costs for consumers.

Jesse Hathaway (jhathaway@heartland.org) is a research fellow with The Heartland Institute.