FT: Job licences holding back the economy, says White House
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From auctioneers and barbers to scrap metal recyclers and travel guides, the number of jobs requiring a licence has been expanding rapidly across US states.
Now the White House is warning that the occupational licensing requirements imposed by individual states are getting so burdensome that they are holding back the overall US economy, by lifting costs to consumers and erecting barriers to workforce mobility.
In a report, the administration called on states to scrap unnecessary regulatory requirements and to harmonise more requirements across state lines, as it rolled out suggestions for better practice in the area.
The White House Council of Economic Advisers, Treasury and Department of Labor report cited estimates suggesting licensing restrictions cost millions of jobs nationwide and have boosted consumer costs by more than a hundred billion dollars.
America’s obsession with occupational licences sits awkwardly with the country’s reputation for free market capitalism, but a quarter of US workers now require a licence to do their jobs.
The share of workers licensed at a state level in the US has risen fivefold since the 1950s, the report said. While some licences are undoubtedly needed — in fields ranging from healthcare to air travel — the hazards prevented by licensing florists and interior designers are less obvious.
The bulk of the licences are issued by individual states, meaning there is little the federal government can do about it apart from cajole state capitals and issue guidelines for improvement. In his latest budget, President Obama asked for $15m to help explore ways in which licensing is creating labour market problems.
One of the malign effects is to further heighten the barriers into the workforce for America’s vast population of individuals with criminal records, the report found. Between 70 and 100 million Americans have a criminal record, and this is in many cases an obstacle to qualifying for an occupational licence — even if the conviction is not relevant to the type of licence sought or there are extenuating circumstances.
It is also a factor contributing to problems in America’s trillion-dollar student debt market, given defaulting on a student loan can lead to the suspension or revocation of an occupational license — driving the individual into even worse financial circumstances.
In a report published in March by the Hamilton Project, Morris Kleiner of the University of Minnesota called occupational licensing “one of the fastest growing labour market institutions in the United States since World War II.”
One of the problems is the sheer variety of requirements depending on the state a person wants to work in. While 1,100 professions are regulated in at least one state, fewer than 60 are regulated in all 50 states, the White House report said.
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The share of licensed workers varies from a low of 12 per cent in South Carolina to a high of 33 per cent in Iowa. In South Dakota, Iowa, and Nebraska you need 16 months of education to become a licensed cosmetologist, the report found, whereas in New York and Massachusetts less than 8 months are needed.
With many people forced to retrain if they want to cross state lines, the report found there was a risk that overall labour force mobility was being impaired. The problem can be particularly acute for populations such as military spouses, who may have to regularly cross state lines.
Michael Strain, deputy director of economic policy studies and resident scholar at the American Enterprise Institute, said: “This is a very important issue for the general economy, for workers trying to change careers or enter the labour market, and for economic liberty.
“It is very difficult for the federal government to affect change, as these are usually non-federal regulations. But the federal government is well practised in incentivising the states, and should do so here.”
The White House report said states and other jurisdictions should review their current licensing arrangements with the goal of rationalising the rules and lowering barriers to employment.
“Most of the power is in the hands of the states,” it said. “State legislators and policymakers should adopt institutional reforms that promote a more careful and individualised approach to occupational regulation that takes into account its costs and benefits, and harmonises requirements across States.”
