Author’s note: This piece has been updated to reflect the full range of states with active or enacted legislation as of April 20, 2017.
Occupational licensing is a silent job killer, but that is beginning to change as the current state legislative sessions have begun across the country.
Between the 1950s and today, the number of Americans who need a license to work has exploded, from about five percent to around 25 percent. The issue has been scrutinized by both the Obama and the Trump administrations, and this year lawmakers in 19 states have been enacted or currently have active bills to reform occupational licensing. However, these reforms face an uphill battle before reaching their respective governors’ desks.
Occupational licenses are often created not by concerned citizens seeking safeguard against harmful businesses, but by “bottleneckers.” The Institute for Justice’s (IJ) Chip Mellor and Dick Carpenter recently published a book, Bottleneckers: Gaming the Government for Power and Private Profit, which gives a history of bottleneckers in different occupations, ranging from interior designers to street vendors, and offers a pathway to reforms. According to the book, a bottlenecker is a person who advocates for the creation or perpetuation of government regulation—particularly through occupational licensing—to restrict entry into his or her occupation. In this way, the “bottlenecker” wins an economic advantage without providing any benefit to consumers.
Occupational licensing used to be an issue criticized mainly by academics like Milton Friedman, Simon Kuznets and Morris Kleiner. In 2012, IJ published the report License to Work, which studied licensing requirements for 102 occupations in all 50 states and Washington, D.C. The report found that the types of occupations requiring a license, and the requirements to obtain those licenses, often differed from state to state, with many licenses being required in only a few states. Following the publication of License to Work, nonprofits and policymakers from across the political spectrum have criticized occupational licensing:
- Brookings Institution, Heritage Foundation and Cato Institute have written papers calling for licensing reform.
- February 2015: the landmark Supreme Court decision in North Carolina State Board of Dentistry v. FTC put licensing boards on notice nationwide. The Court held that licensing boards were no longer immune from antitrust litigation unless they followed state policy and were actively supervised.
- July 2015: the Obama Administration published a white paper on occupational licensing that called for reforms.
- The 2016 Republican Platform endorsed occupational licensing reform.
- February 2017: the Acting Chair of the Federal Trade Commission (FTC), Maureen Ohlhausen, announced the creation of an Economic Liberty Task Force within the FTC to advance economic liberty issues, with a focus on occupational licensing.
This growing agreement has resulted in multiple states’ filing bills to reform or end occupational licensing requirements.
Hair braiding is one of the leading occupations seeing licensing reform. Many states require hair braiders to obtain a cosmetology license to practice professionally, which could involve thousands of hours of training and cost tens of thousands of dollars, even though barely any cosmetology schools teach hair braiding. This year, lawmakers in seven states introduced bills to exempt hair braiders from needing a cosmetology license.
- In Indiana, New Hampshire and Rhode Island lawmakers filed bills that would exempt hair braiders from needing a cosmetology license.
- In Louisiana, HB 468, would exempt hair braiders from needing a cosmetology license and preempt any municipal regulations that would require a license for hair braiding, and HCR 5 would repeal the state’s specialty permit for “alternative hair design.”
- In Missouri, lawmakers filed HB 230 to exempt hair braiders from needing a cosmetology license. Instead, the bill would require braiders to register with the state, pay a $25 fee, and have a brochure and self-test on infection control and scalp diseases which must be available for inspection within the business. (IJ is currently challenging Missouri’s requirements for braiders to obtain a cosmetology license.)
- In New Jersey, lawmakers filed A 4421, which would exempt hair braiders and eyebrow threaders from needing a cosmetology license.
- In February, South Dakota became the first state in 2017 to exempt hair braiders from needing a cosmetology license after Gov. Dennis Daugaard signed HB 1048 into law.
IJ’s first lawsuit successfully challenged these licensing requirements in Washington, D.C. 25 years ago. Since then, more and more states have exempted braiders from needing a cosmetology license, with an uptick in recent years. In 2015, four states—Arkansas, Colorado, Maine, and Texas—exempted braiders and in 2016 five states—Delaware, Iowa, Kentucky, Nebraska, and West Virginia—exempted hair braiders from needing a cosmetology license to practice. At the time of publication, 21 states do not require braiders to obtain a license to work.
Eliminating Licensing Barriers for Ex-Offenders
In addition to eliminating licenses for hair braiders, three states have proposed bills that would grant ex-offenders more rights in seeking a license. In Minnesota and Nebraska bills were filed that would allow offenders to petition licensing boards regarding their eligibility to obtain a license before they invest in education or training. This would prevent applicants from spending time and money in training for a license they ultimately are unqualified for because of past criminal convictions. The bills also would flip the burden to prove the offender’s past is predictive of future crime. In Kentucky, Gov. Matt Bevin signed SB 120 into law which prohibits boards from denying a license solely for having a criminal record and granting applicants the right to a hearing before being disqualified. These laws would help ex-offenders seeking to obtain a license and earn an honest living.
The following states are also working to reform licensing.
- On April 5, in Arizona, SB 1437 was signed into law to allow individuals harmed by occupational regulations to petition agencies to repeal or modify said regulations, and create a cause of action for individuals challenge a regulation in civil court. Individuals can prevail if the state fails to show that a regulation is necessary to protect public health, safety or welfare. (More information on Arizona’s licensing reform efforts is available here.)
- In California, SB 247 would eliminate licenses for barbers, locksmiths, hearing aid dispensers, custom upholsters and make-up artists; raise the floor for perform contract work as a tree trimmer or landscaper from $500 to $25,000; and ban municipalities from enacting new licenses or licensing fees, starting in 2018.
- In Florida, HB 7047 would eliminate licenses for talent agents, interior designers, hair and body wrappers, and halve the hours needed for a barbers license from 1,200 to 600 for individuals with licenses from another state or who completed 325 hourse of course work.
- In Maine, LD 1036, would eliminate licensing requirements for 24 occupations including: wood measurer or scaler, electrical helper, dietetic technician, arborist, funeral attendant, underground oil storage tank inspector, cathodic protection tester, sign language interpreter, animal control officer, guide, employee of slot machine facility or casino facility, weigher, taxidermist, animal breeder, teacher assistant, debt collector, auctioneer, fire alarm installer, aesthetician, veterinary technologist, security guard, massage therapist, mobile home installer and packer.
- In Tennesse, HB 0306 would exempt shampooers from needing a cosmetology license.
- In March, in Utah, SB 81 was signed into law to prevent cities and counties from requiring licenses or permits for occasional businesses that are home-based or run by children.
Opposition to Reforms
The anticompetitive protections that licenses provide create a strong incentive for bottleneckers to fight tooth and nail against reforms. Two licensing reform battles, in Iowa and Mississippi, highlight the strength of resistance that bottleneckers can bring to state legislators.
In February, Iowa state Rep. Bobby Kaufmann was applauded after yielding to bottleneckers’ pressures and literally ripping up a cover sheet for House Study Bill 138, during a panel on the bill. The bill included provisions that would have ended licensure for occupations including dietitians, massage therapist, barbers, and many other occupations and replaced them with registrations. At the hearing, licensees testified negatively for more than an hour before Kaufmann tore up the bill. Kaufmann also said he received more than 3,600 emails about the bill, the overwhelming majority of which opposed it. This is the resistance that reformers meet when trying to pass legislation to reduce the burdens of occupational licensing.
A similar type of resistance was mounted in Mississippi when a bill to deregulate hair braiding was submitted to the state legislature. In 2004, three hair braiders partnered with IJ to challenge the state’s requirement for a cosmetology license to practice hair braiding. This led to legislation being filed to exempt hair braiders from needing a cosmetology license. In the documentary Locked Out, Mississippi Rep. Steven Holland recalled how “a thousand cosmetologists showed up” to a hearing to protest the bill. But Rep. Holland was resolved to pass the bill, and ultimately it was passed and signed into law in April 2005. As of May 2016, more than 2,600 hair braiders had registered with the state of Mississippi and are realizing, like all Americans, the dignity that comes from work and one’s service to others.
Responding to Opposition
Mississippi showed that opposition to licensing reforms can be overcome. But legislators need more tools in the legislative toolkit to pass reforms. IJ created a model economic liberty bill that included provisions to give state governments the tools to reign in burdensome licensing. One of these provisions would create a sunrise process, in which a study is required to analyze the necessity of proposed licenses. Another provision would include a sunset process, in which a certain percentage of licenses are reauthorized annually. This process gives legislators the opportunity to scrutinize the necessity of each individual license. A third provision, based on an inverted pyramid described in the IJ report, Boards Behaving Badly, would be used to convert existing licenses to less restrictive forms of regulations.
Working from the top of the pyramid, state policymakers should consider the least restrictive form of regulation as an alternative to licensing. The options become more restrictive, and should be used less often as policymakers consider each level separately.
The model bill also includes provisions for oversight of licensing boards, which would help those boards reclaim immunity from litigation following North Carolina State Board of Dentistry v. FTC. Finally, the bill includes provisions allowing ex-offenders to petition licensing boards regarding their eligibility for a license, prior to investing time and money into training for a license. Together, these provisions would strike a balance between safeguarding the public and workers from dangerous businesses while still allowing entrepreneurs to pursue their goals.
Regulatory Review and/or Board Supervision and Oversight
This year, eight states filed bills to provide oversight of licensing boards and create review processes to eliminate burdensome licenses:
- Minnesota: SF 1776 would ensure that new regulations comply with a least-restrictive means process, like in IJ’s model economic liberty bill.
- On April 11, in Mississippi, HB 1425 was signed into law to allow the governor to act as licensing ombudsman over executive branch licensing boards with the ability to veto or modify new regulations or enforcements. The governor can also recommend less restrictive alternatives to licensing to boost job growth.
- Missouri: HB 609 would create a process to review whether new legislation is truly necessary, and if so, ensure that it is the “least restrictive” option.
- Nebraska: based on model legislation by IJ, LB 299 would: 1) create the “Office of Supervision of Occupational Boards” to review and approve proposed occupational licenses, 2) allow workers to file complaints with the office about noncompliant regulations, and 3) create the “Legislative Office of Occupational Regulations” to review and report on proposed occupational licenses.
- New Jersey: A 4459 would allow the Attorney General to act as licensing ombudsman to review, amend or repeal any regulatory actions taken by licensing boards.
- In Tennessee, HB 0326 would allow commissioners and chief executive officers of administrative departments to review administrative rules that may potentially restrain trade and allow them ta total of 18 stateso approve, veto or remand a rule if it is not consistent with state policy or law. The bill would also allow them to review other actions by boards, such as enforcement actions, and notify the board within 10 days of the action taken that it is subject to review and determine in writing whether to approve, veto or remand the action to the board if it is not consistent with state policy or law.
- Texas: SB 844 would create a process to allow the Attorney General to evaluate proposed rules and regulations before they can be enacted.
- Wisconsin: SB 30 would create an Occupational License Review Council, with a majority of members appointed by the governor, to compile a report to repeal and reform occupational licenses. Legislation must be prepared in response to the report and acted upon no later than June 30, 2019. The council would then be ended the next day.
The Road Ahead
The agreement by policymakers from parties and think-tanks of varying political persuasions will likely lead to further reform proposals. Rather than allowing bottleneckers to call the shots, policymakers should seek less restrictive means to protect the public and workers alike. Doing so will lead to more entrepreneurship, more jobs, and more opportunities for everyone.