Licensing’s Negative Effects

Our results from this third edition of License to Work provide some reason for optimism, especially compared to the previous editions—but they also highlight the extent and frequent irrationality of licensing barriers that remain. 

A large body of research has shed light on the ill effects of such barriers to entry, documenting the costs to workers and entrepreneurs, to consumers, and to society and the economy at large. (See Appendix C for a compilation of recent studies.)  Meanwhile, there is a lack of hard evidence that licensing works to protect the public to a degree that would justify these costs—and a mounting body of evidence suggesting that licensing delivers no such benefit and instead serves primarily to protect private interests. 

Heavy Costs for Workers

Licensing’s most direct and obvious negative effects are the costs imposed on workers, both those in and those aspiring to licensed occupations. These costs can include not only the time and money we document here but also tuition—and often student debt—for required schooling; reduced employment and entrepreneurial opportunities; and even curtailed free speech rights.

As we found, not all licenses require expensive schooling, but many do, and the costs can be steep. A recent IJ study using federal data found that cosmetology school tuition costs more than $16,000 on average ¹ —almost half the price of a four-year degree at a public university, even though programs are supposed to last just one year. ² Most students require federal loans to pay tuition, but schools’ poor graduation rates and low incomes in the field may make repayment difficult. ³  Beyond cosmetology, other recent research estimated that, among student loan borrowers, licensed graduates owe about 43% more in student loan debt than unlicensed graduates, suggesting education required for licensure is associated with greater student debt. ⁴  Moreover, new research has found licensees do not make back the full costs of their licenses through higher wages. ⁵  In short, licensing can be a bad deal for the licensed.

Licensing also reduces employment and entrepreneurial opportunities, and it does so by design. Aspirants who cannot meet requirements or who cannot afford—or choose not to spend—the time or money to get licensed are simply shut out. The effects can be significant. A 2018 IJ study co-authored by licensing expert Morris Kleiner estimated that licensing costs the national economy 2 million jobs each year. ⁶  As for entrepreneurs, recent research indicates more burdensome licensing requirements make for a less attractive business climate as firms are more likely to locate in states whose licensing laws are less restrictive. ⁷  Licensing also serves as a barrier to workers moving across state lines ⁸  and to those changing occupations ⁹ —findings that come as little surprise given the wide variation in licensing requirements documented here.

In addition to these broad effects, certain groups’ occupational prospects are particularly impacted by licensing. Immigrants, for example, are 30 to 35% less likely than nonimmigrants to be licensed. ¹⁰  In part, this may be due to English-ability requirements ¹¹  or exams not being offered in applicants’ native languages. Another problem is that licensing boards often do not recognize foreign credentials or experience. ¹²

Licensing may also reduce employment for racial and ethnic minorities and women in licensed fields. Research has found licensing decreases the labor supply of Black men in licensed occupations by up to 19%; of Black women by up to 22%; and of white women by up to 27%. ¹³  Minorities and women who do become licensed and find employment earn more than unlicensed peers. ¹⁴  But these higher wages for a few come at the price of restricted occupational access for others (as well as higher costs for consumers, discussed below).

In addition, those trying to reenter society after a conviction face limited employment opportunities thanks to licensing. Beyond struggling with the ordinary costs of licensure, former offenders often encounter special restrictions that bar or limit people with criminal records—even records involving irrelevant or long-ago violations—from becoming licensed. ¹⁵  Research suggests limiting this population’s ability to get licensed can be counterproductive, as states with these burdens also have increasing rates of recidivism. ¹⁶

As perverse, licensing restrictions targeting those with criminal records can keep people out of fields even when they are well qualified. Rudy Carey, for example, was a successful substance abuse counselor in Virginia for five years. His employer, a treatment facility in Fredericksburg, was untroubled by his past as an addict with a criminal record; indeed, his life experience, as well as training, likely made him better at his job. Nevertheless, once his employment came to the state’s attention, the facility was forced to let him go. In Virginia, anyone convicted of certain crimes is flatly prohibited from ever working in a “direct-care position” like Rudy’s. ¹⁷

Similarly, Dario Gurrola first learned to fight fires while serving time as a juvenile offender in a California state fire camp. Now he works as a firefighter seasonally, but he is barred from doing so full time. Because of his criminal past, he cannot get the emergency medical technician license (termed a “certification” in the state) required of full-time firefighters, even though he has successfully completed EMT training and passed the national EMT exam. ¹⁸

In a perhaps surprising cost imposed on workers, licensing can even threaten their First Amendment rights, as well as their livelihoods. Overzealous licensing boards from coast to coast have tried to stifle speech that they claim falls under a licensed occupation’s “scope of practice.” Engineering boards have gone after people for speaking about math in North Carolina ¹⁹  and Oregon ²⁰ ; dietetics and nutrition boards have silenced people who want to give diet advice in Florida ²¹  and North Carolina ²² ; and surveying boards have tried to stop people from making maps in Mississippi ²³  and North Carolina. ²⁴  In most of these cases, the boards’ actions threatened not only to silence workers and entrepreneurs but to prevent them from working at all.