At What Cost?

New IJ Research Reveals the Economic Costs of Occupational Licensing

Since IJ opened its doors, we have argued not only that occupational licensing shuts people out of work, but also that it robs consumers and the wider economy of the benefits of honest competition. Thanks to a new report from IJ’s strategic research program, we have top-notch data to back up our argument.

Released in November, At What Cost? is the result of years of collaboration between IJ, Dr. Morris Kleiner, the leading academic expert on licensing, and his fellow economist, Dr. Evgeny Vorotnikov. Drawing on two national datasets, we created the largest-ever sample of American workers surveyed about licensing and other job characteristics. This uniquely large dataset enabled Drs. Kleiner and Vorotnikov to look closely at licensing’s impacts on consumers and the wider economy. Their work both confirms that licensing has exploded in recent decades and offers the first state-level estimates of licensing’s economic costs for 36 states.

At What Cost? finds that nearly 20 percent of American workers now need a license to work, up from just 5 percent in the 1950s. States vary widely in the share of workers licensed, from 14 percent in Georgia to 27 percent in Nevada.

Licensing costs consumers and the wider economy billions of dollars each year.

And all this licensing doesn’t come cheap. Nationally, it costs the American economy nearly 2 million jobs annually. In the states, licensing’s toll on jobs ranges from around 7,000 (Rhode Island) to nearly 196,000 (California).

Licensing also costs consumers and the wider economy billions of dollars each year. Using a measure of lost economic value that takes into account all the resources that are squandered due to licensing, this study estimates annual losses to the national economy of $184 billion. In the states, losses range from $675 million (Rhode Island) to over $22 billion (California).

Occupational licensing laws impose these costs because they restrict competition, effectively giving licensed workers a monopoly. With fewer competitors, licensees can charge more for their services. The rest of us pay the price.

And what are we buying with those 2 million jobs and billions of dollars in economic activity lost to licensing? Not much. Although lawmakers often believe they are protecting the public when they create licenses, there is little empirical evidence demonstrating a link between licensing and quality or health and safety.

Fortunately, more and more lawmakers, judges, and opinion leaders are waking up to the reality that, too often, occupational licensing just isn’t worth the cost. That’s thanks, in no small part, to IJ. In courtrooms, statehouses, and the court of public opinion, we’ve been working tirelessly for 27 years to roll back needless licensing barriers that serve only to keep people out. And we’re winning.

Our new data on licensing’s considerable economic costs give us a powerful new tool to keep winning for our clients and thousands like them. Freeing people from needless licensing burdens isn’t just the moral thing to do, it’s the smart thing to do. When markets are more competitive, everyone wins.

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