An overgrown thicket of state regulations is strangling more and more of the American workforce. These regulations are known as occupational licensing.
Occupational licensing forces aspiring workers and entrepreneurs to clear various government-mandated hurdles before they may legally perform their jobs. They must earn a particular degree or apprentice for a set amount of time, attain a certain grade level, pass exams, pay fees to the state, and more. If they practice a licensed occupation without a license, they may face fines or even jail time. In effect, occupational licensing requires workers and entrepreneurs to secure a government permission slip to work.
This government-defined pathway to employment contrasts sharply with the way in which people typically develop their careers. In most fields, workers and entrepreneurs build skills by investing in education, gradually gaining experience in the workplace, or both. Potential employers evaluate whether workers’ knowledge and experience fit the job, and potential customers decide whether a business is worth their money. Thus, for most occupations, there are a variety of ways to break in and learn on the job, providing flexibility to workers and employers alike. In licensed occupations, there is usually only one.
This report documents the state-mandated paths into a sample of lower-income occupations across all 50 states and the District of Columbia, recording the requirements needed to obtain licenses. It finds that these licensing requirements are frequently steep, inconsistent and irrational.
Research on Occupational Licensing
Research suggests that the thicket of occupational licensing is growing, imposing substantial costs on workers, entrepreneurs and consumers. And these costs come with little evidence of improved services or other public benefits. As a result, policymakers and advocates from across the ideological spectrum are increasingly recognizing that pruning back licensing is a reform strategy that can expand economic opportunity without compromising consumer protection.
The growing burden of licensing
The share of American workers needing a license to work has climbed steadily in recent decades, from 1 in 20 workers in the 1950s to roughly 1 in 4 today, according to economist and licensure expert Morris Kleiner, Princeton economist Alan Krueger and data from the Bureau of Labor Statistics (BLS). 1
Research suggests this growth is not primarily due to more workers leaving the farm and the factory for traditionally licensed fields like medicine and law. Instead, the main driver is new laws expanding licensing into previously unlicensed occupations. 2
Licensing laws now guard entry into hundreds of occupations, including jobs that can offer opportunities for upward mobility to those of modest means, such as cosmetologist, auctioneer, athletic trainer, landscape contractor and massage therapist. The tangle of laws has become so thick that a commission in California recently admitted that the state has no way of knowing how many occupations it licenses. 3
The requirements licensing laws impose often create serious impediments to people hoping to break into new occupations, and these impediments may be more difficult for certain workers to overcome. Among others, minorities, lower-income workers and older workers switching careers may find mandated education and experience too costly or time-consuming. 4
Veterans often discover that their military training does not match state requirements for similar jobs, shutting them out of occupations for which they are qualified or forcing them to undergo pointlessly duplicative training. 5
Military spouses often encounter a similar problem when relocated to a new state with different licensing rules. 6
And workers with a criminal record often face outright prohibitions or other special barriers to becoming licensed, impeding their integration into the workforce and the larger community. 7
Licensing’s economic effects
As occupational licensing spreads through the labor market, it has significant effects on the economy as a whole. Researchers have found that licensing reduces access to jobs, inhibits geographic mobility and raises the costs of services.
Licensing limits job opportunities and entrepreneurship by keeping people out of licensed occupations. Research indicates that occupations experience slower employment growth in states where they are licensed than in states where they are not, suggesting that licensing acts as a barrier to newcomers. 8
Steeper license requirements also present steeper barriers. Studies of multiple occupations have linked higher licensing burdens with lower levels of employment in licensed fields, as well as lower rates of entrepreneurship among low-income workers. 9
Altogether, licensing laws may cost the American economy as many as 2.85 million jobs. 10
Another way licensing impacts employment is by inhibiting geographic mobility. States vary in both the occupations they license and the requirements they set for entering licensed occupations. As a result, to practice legally in a new state, licensed workers may need to acquire additional credentials or even go back to square one, while unlicensed workers may need to become licensed for the first time, even if they led successful careers before moving. Not only do such licensing barriers often make little sense—workers do not become unqualified by crossing a state border—but they also deter interstate mobility, making it harder for workers to move to where jobs are and for entrepreneurs to relocate to more desirable markets. 11
In addition to restricting opportunities for workers, licensing hits consumers in their pocketbooks. Multiple studies have linked licensing to higher prices, likely because the artificially limited supply of practitioners can command higher fees. 12
In all, consumers may pay an additional $203 billion nationwide due to licensing each year. 13
Licensing may also reduce the availability of services, both by pricing them beyond the reach of lower-income consumers and by driving service providers out of the market. 14
One example neatly illustrates licensing’s effects on jobs, entrepreneurial activity and the availability of services: African-style hair braiding in Louisiana and Mississippi. With a substantially larger black population, Louisiana might be expected to be a better market for African-style hair braiders than neighboring Mississippi. Yet in 2012, Louisiana had just 32 braiders legally allowed to serve the whole state, while Mississippi had over 1,200 (see Figure 1). The difference is not market opportunity but rather licensing barriers: Louisiana demands braiders undergo 500 hours of training for a braiding license, while Mississippi requires only simple registration. Louisiana’s steep requirements lock aspiring braiders out of work and make braiding services significantly harder to find—as do other states’ needlessly high barriers. 15
Figure 1: Stricter Licensing Often Means Fewer Jobs and Service Providers
Required Training Hours vs. Number of Licensed/Registered Hair Braiders, Mississippi and Louisiana, 2012
Little public benefit from licensing
While the economic costs of licensing are well established, evidence for public benefits is harder to find. In theory, licensing should improve the consumer experience and protect public health and safety by setting minimum qualifications and weeding out incompetent practitioners, especially in fields where consumers might be unable to tell good providers from bad ones on their own. Yet most research has failed to find a connection between licensing and service quality or safety. 16
Studies of licensing and service quality have examined a wide range of occupations, including florists, tour guides, hair braiders and cosmetologists, without finding positive effects. 17
Even research on occupations where health risks may be more pronounced, such as dental hygienists, nurse practitioners and opticians, has found that licensing restrictions raise the cost of services without improving quality. 18
Put differently, research suggests that consumers are paying more without getting better results.
Growing recognition of the need for reform
As licensing has extended its reach into the labor market, recognition of its economic and human consequences has likewise spread. A broad, ideologically diverse array of policymakers and research institutes are now questioning whether licensing has gone too far.
In 2015, the U.S. Treasury Department, the Council of Economic Advisers and the Labor Department under former President Barack Obama issued a report documenting problems with licensing policy and calling for widespread reform. 19
Obama and former Vice President Joe Biden called attention to the issue, while Dr. Jill Biden and former First Lady Michelle Obama worked to reduce licensing barriers for military spouses. 20
The BLS has started collecting data on licensed workers through its Current Population Survey, and in early 2017 the Federal Trade Commission created an Economic Liberty Task Force focused in part on occupational licensing reform. And in July 2017, the U.S. Secretary of Labor under President Donald Trump, Alexander Acosta, highlighted the issue and encouraged state legislators to undertake occupational licensing reform. 21
Licensing reform is also now championed by public policy organizations left, right and center, including the Brookings Institution’s Hamilton Project, the Cato Institute, the Heritage Foundation, the Ewing Marion Kauffman Foundation, the Mercatus Center at George Mason University, the National Conference of State Legislatures, the National Governors Association, the Council of State Governments and the American Legislative Exchange Council. 22
At the state level, governors in Arizona, California, Illinois, Indiana and Iowa have either vetoed bills proposing new occupational regulations or urged broader reform. 23
California’s well-regarded Little Hoover Commission, an independent and bipartisan state oversight agency, released an in-depth study of the issue and outlined strategies to ease licensing barriers. 24
In Indiana, the Professional Licensing Agency, which oversees licensed occupations, put forward a plan for reducing licensing barriers by establishing self-certification as an alternative. 25
Research institutes in Alabama, Arkansas, Connecticut, Michigan, Missouri, Wisconsin and elsewhere have called on their states to reform licensing laws. 26
Among policymakers and advocates at both the state and national levels, interest in licensing reform is at an all-time high.
Measuring Licensing Burdens for Lower-Income Workers
This report contributes to the national discussion on occupational licensing by measuring the burdens state licensing laws impose on low- and middle-income workers. The original edition of License to Work broke new ground in 2012 by providing the first detailed nationwide picture of such licensing burdens. Until then, most national studies of occupational licensing laws had measured only their scope, usually by counting state licenses, or else recorded only whether a particular requirement was imposed, not how severe it was. 27
This second edition of License to Work, like the first, examines both the scope and the specific burdens of licensing, documenting the requirements to enter 102 lower-income occupations across all 50 states and the District of Columbia.
For each occupation in the sample, this report captures the five types of licensing requirements most commonly imposed on aspiring workers: fees, education and experience, exams, minimum grade completed, and minimum age. Occupations are considered licensed when government permission is required to legally practice, even if the statute uses a label other than “license,” such as “certification” or “permit.” Requirements to pay fees alone, often known as “registration,” are also included in order to encompass the full range of barriers to work. Restrictions on the use of an occupational title (e.g., “interior designer” or “certified interior designer”) are not included because they allow for open entry into the occupation. With these data, we can compare how difficult the 50 states and D.C. make it for workers to enter various occupations.
This second edition of License to Work offers both updated data and several improvements in data collection and analysis. First, although both editions study 102 occupations, the mix of occupations has changed slightly. As in the first edition, this report examines occupations that are 1) recognized by the BLS as ones in which practitioners, as of 2012, made less than the national average income and 2) licensed by at least one state. But this second edition modified or dropped a handful of occupations in order to achieve greater consistency and clarity in licenses recorded across states.
Second, this edition offers an improved approach to recording contractor licensing within the construction trades. Both editions consider commercial and residential contractor licenses separately, as many states have distinct licenses with different requirements that depend on the setting of the work. Other states, however, do not. These states require the same license, sometimes called a general contractor license, regardless of the setting. The first edition recorded such licenses only in the commercial category to avoid double counting. This second edition, by contrast, records them in both commercial and residential settings. While this results in counting some licenses twice, it gives a fuller and more accurate picture of the extent of licensing for residential contracting work.
Third, where possible, this edition focuses more consistently on the licenses required to be a sole proprietor within each occupation. In some occupations, states set stricter requirements for those running a business than for employees. Because we are interested in the effects of licensing on entrepreneurship, this second edition favors capturing the requirements to be a sole proprietor. As a result, in some cases, license requirements may appear stricter than previously recorded, or it may appear that an occupation is newly licensed, while, in fact, this second edition is simply documenting a different level of license within the same occupation.
Details on methods and improvements from the first edition can be found in Appendix A and Appendix B. Together, the improvements in data collection and analysis result in a clearer picture of the extent and burdens of licensing among lower-income occupations. Unfortunately, they also limit the ability to compare state and occupational rankings across the two editions. For those interested in comparisons over time, we provide on our website a dataset containing licensing requirements for a subset of occupations consistently recorded in both editions. Importantly, even with these changes, the second edition of License to Work finds results very similar to the first, concluding that licensing barriers are widespread and often severe, arbitrary and irrational.
Tip of the Iceberg
While the burdens documented here are substantial, this report actually understates the extent to which licensing acts as a barrier to entry. First, it reviews only a sample of 102 lower-income occupations, excluding higher-income occupations as well as those not covered by the BLS when we created our original sample in 2012. Recent evidence indicates that states license many more occupations than examined here. For example, Indiana’s Professional Licensing Agency reports that the state licenses 134 different occupations, though License to Work covers only 37 occupations licensed by the state. 28
Similarly, a study by the Mackinac Center for Public Policy identified 164 occupations licensed by Michigan, while this report studies only 49. 29
Second, this report examines only state licenses, not those issued by the federal government, counties or cities. In some states, certain occupations may be licensed by cities or counties instead of state governments. 30
And some cities impose their own licensing requirements in addition to state requirements. Detroit, for example, licenses roughly 60 occupations, about half of which are also licensed by Michigan. 31
The rest are licensed only by the city, including occupations like mover, auctioneer and landscape gardener. Another city that issues its own occupational licenses—Baltimore—is examined in “Local Governments Put Up Roadblocks, Too.”
Third, this report underestimates licensing burdens by taking a conservative approach to documenting licensing requirements. Although we favor recording license requirements for sole proprietors where possible, when multiple license options are available, we generally select the lowest-level license that permits the broadest scope of practice. Similarly, if a state allows multiple pathways to licensure—for example, securing a specialized degree or obtaining specified experience in the field—we record the requirement that takes the least amount of time to complete. However, that pathway may not be the least burdensome option for a particular individual due to other constraints, such as cost of schooling or availability of nearby schools or apprenticeship opportunities.
Lastly, this report does not attempt to quantify the indirect costs of becoming licensed, such as tuition for required schooling or income forgone while in training. Such costs may represent particular hardships for lower-income workers hoping to break into licensed occupations.