Today’s nationwide thicket of occupational licensing laws took root over decades, and pruning it back will take a similarly sustained effort. No single reform strategy offers a quick fix or a complete solution. Fortunately, there are several options for lawmakers interested in expanding economic opportunities, lowering consumer costs and increasing consumer choice by reining in occupational licensing. Reform options fall into two categories: those aimed at specific licensing barriers and those designed to improve licensing practices across the board.
The goal of any reform strategy should be to ensure that occupational regulation is no more burdensome than needed to address present, significant and substantiated harm. Only by applying the least restrictive regulation necessary can lawmakers ensure that licensing is being used to protect the public rather than to fence out competition.
The first category of reforms, those targeted toward specific licenses, call on lawmakers to evaluate their states’ licensing regimes, identifying licenses that can be repealed and opportunities to curb anticompetitive licensing rules.
The most direct way to free workers and entrepreneurs from licensing red tape is to repeal needless licenses and, if necessary, replace them with less burdensome alternatives. State lawmakers should scrutinize the occupations their states license, looking beyond those sampled in this report, and target for elimination any licensing laws that create barriers to entry without advancing public health and safety. To identify such licenses, legislators should employ the inverted pyramid. 1
Reformers often attempt to identify and draw a line between occupations that should be licensed and those that should not. Not only is drawing such a line difficult, it is also ill advised and, indeed, unnecessary. As the inverted pyramid illustrates, reformers have many more options than just leaving a license in place or fully deregulating an occupation. Reformers can use the inverted pyramid to find the proper regulatory or non-regulatory option for a given occupation by asking two questions: Is there a demonstrated need to regulate this occupation? And if so, what is the least restrictive means of addressing the problem? 2
To answer the first question, lawmakers should demand credible proof of systemic harm that would justify government intervention. That means understanding how the occupation works and what harms, if any, can result from its practice—as well as whether any harms can be mitigated with non-regulatory alternatives, such as those at the top of the inverted pyramid’s hierarchy. Issues to consider include:
Without credible evidence of systemic harm that cannot be addressed through non-regulatory means, repeal may be in order. For instance, if the occupation has been practiced safely without licensing, in the past or elsewhere, licensing may not be necessary. And if market-based information and mechanisms for incentivizing quality and weeding out poor service providers are already—or could easily be—in use, licensing may be superfluous.
The second question posed by the inverted pyramid—what is the least restrictive means of addressing the problem?—should only come into play if empirical evidence identifies a problem that non-regulatory mechanisms cannot mitigate. Then, lawmakers should select the least intrusive regulatory option that best addresses the problem. For example, if sanitation is the concern, inspections may be more appropriate than licensing. Or if consumers face the potential for hefty losses from botched service, requiring providers to carry reasonable bonding or insurance may better protect their clients than licensing. All regulatory alternatives to licensing, including deceptive trade practice acts, registration and state certification, should be preferred to licensing.
In addition, before settling on an occupational regulation, lawmakers should examine whether the broader regulatory environment of an occupation already mitigates potential harm. For instance, if practitioners work solely under the supervision of other licensees, as is common for various technicians in health care fields, occupational regulations may not be needed. Similarly, occupational practices in some fields may already be regulated through non-licensing means such as permitting and building codes.
If, after identifying proof of harm and fully considering all alternatives, lawmakers determine that an occupation should be licensed, they should ensure that barriers to entry are set no higher than necessary. Licensing requirements should be carefully tailored to the harms identified. Requirements that do not address a proven harm may serve only to restrict competition and should be eliminated.
By examining a state’s licensing regime through the lens of the inverted pyramid, reformers and policymakers can identify licenses for repeal and, where necessary, replace them with less onerous regulations that promote the public interest instead of suppressing competition.
In addition to repealing needless licenses, untangling licensing red tape also requires rolling back license creep—the expansion of occupational boundaries and accretion of unnecessary occupational rules that stifle competition.
Legislators have the authority to revise and clarify licensing statutes and rules to pare back such anticompetitive regulations and should do so by:
The second category of licensing reforms apply across the board to all of a state’s licensing regimes. Some of these reforms aim to stem the growth of licensing by making it harder for anticompetitive restrictions to get on the books and stay there. Other across-the-board reform options seek to untangle licensing red tape that prevents people with criminal records from obtaining gainful employment and that impedes the flow of workers and entrepreneurs across state borders.
One method for reducing needless licensing is to make it easier for aspiring workers and entrepreneurs to bring—and win—lawsuits against licensing laws in court. The U.S. Constitution protects the right to earn an honest living free from unreasonable government interference, yet courts have often been reluctant to enforce this right by striking down arbitrary or irrational licensing laws. 5 In fact, under the prevailing legal standard, licensing laws are presumed valid when challenged in court, and individuals must prove that they are unconstitutional. 6 This gets it exactly backward. Governments should have to prove that licensing laws advance legitimate health and safety concerns to justify restrictions on the right to earn a living. 7
State lawmakers can help remedy the problem by creating another, easier path for challenging licensing laws—a statutory right to engage in a lawful occupation that the courts are empowered to enforce. There are at least three ways of establishing such a right:
Another approach to stemming the growth of licensing laws is to establish a formal process that would subject them to meaningful scrutiny when proposed and then again regularly after enacted. Under this approach, lawmakers would charge an independent agency with reviewing proposed and existing occupational regulations and give it a mandate to protect competition by favoring regulation only in cases of demonstrated harm and by selecting the least restrictive option to address that harm.
Several states already conduct reviews of occupational regulations, commonly known as “sunrise” (for proposed regulations) and “sunset” (for existing regulations) reviews. 8 Unfortunately, current sunrise and sunset systems are often hampered by shortcomings that can limit their effectiveness as tools to curb licensing. 9 The scope, depth and quality of analyses vary, evaluation criteria are sometimes unclear, procedures are not consistently applied, and industry representatives can occasionally exert disproportionate influence. 10 And often, sunset review is directed at assessing executive agency performance rather than examining the continued need for regulation. 11
To remedy or avoid such shortcomings, lawmakers can reform current sunrise and sunset systems or establish new systems with the following recommendations 12 :
Establishing a formal process for methodically evaluating occupational regulations can be one way to counter industry influence and to provide an advocate for the consumers and aspiring workers who are typically underrepresented in licensing decisions. 14 In the end, however, even the most conscientious sunrise or sunset systems will work only if legislatures are willing to follow their recommendations to rein in anticompetitive licensing. 15
An additional way lawmakers can curb anticompetitive licensing laws, policies and rules is to rein in the regulatory boards that are charged with promulgating and enforcing them. Restraining boards’ power to fence out competition will also help states avoid antitrust liability under the Supreme Court’s holding in North Carolina State Board of Dental Examiners v. FTC.
The surest way to curtail licensing boards’ anticompetitive behavior and to eliminate all exposure to antitrust litigation is to repeal needless occupational licensing laws, replacing them where necessary with less restrictive regulations following the inverted pyramid. None of the alternatives to licensing in the pyramid’s menu restrain competition as licensing does, and thus none carry the same exposure to antitrust litigation and its corresponding costs and damages. 16
For licenses that are maintained, states should establish meaningful oversight of licensing boards by charging an independent office in the executive branch with approving or disapproving boards’ rules, policies and enforcement actions prior to implementation. The supervisory office, whether it reports to the governor, the attorney general or the commissioner of an agency, should be given a mandate to promote competition and to ensure that boards’ actions adopt the least restrictive means necessary to address proven public health and safety harms. 17 And the supervisory office should be required to provide feedback to members of both the executive and legislative branches about future changes to state law that will increase competition and reduce litigation risk.
Unlike other proposed reforms—including adding public members to boards, changing the selection process for members and giving cursory review to board actions—such a supervisory office would both curb anticompetitive behavior by licensing boards and establish the active supervision required for antitrust immunity under N.C. Dental. 18
In addition to enacting reforms designed to stem the growth of licensing, lawmakers should remove unnecessary barriers that often keep former offenders from gaining meaningful employment and reintegrating into society. The most straightforward way to ensure individuals with a criminal record are not held back for lack of a license is to repeal unnecessary licenses and replace them, if necessary, with less restrictive regulation. Licensing itself, not just exclusions based on criminal records, creates barriers for former offenders trying to enter or reenter the workforce. 19
But where licenses are not eliminated, lawmakers should limit license denials based on criminal history to those cases where the crime is relevant and there is evidence that the likelihood of harm to public health and safety would increase if the state grants the license.
First, lawmakers should do away with blanket exclusions that keep anyone with a certain type of criminal record, for instance a felony conviction, from obtaining a license. Second, lawmakers should require case-by-case decisions on license denials for former offenders and establish clear criteria for such denials. Third, lawmakers should allow occupational aspirants to petition boards for a written determination of whether their criminal history is disqualifying before they invest in required education and training for a license. 20
In allowing for such petitions, lawmakers should establish criteria for denials that require boards to provide substantial proof that the offense is relevant to the occupation and that the petitioner poses a greater risk to public health and safety if licensed than if not. 21 Such a process would allow well-considered denials in the public interest, but it would put the burden of proof on boards to demonstrate that granting a license to a former offender is too risky, rather than force individuals to prove that they deserve a license.
Lawmakers should also lower or eliminate licensing barriers that impede the free flow of workers and entrepreneurs into their states. Solutions to the problem of restricted interstate mobility should start by recognizing its root cause: unnecessary licensing red tape. Lawmakers can help more in-state and out-of-state workers find jobs by eliminating needless licensing requirements and, if needed, substituting less restrictive alternatives.
A popular alternative solution—reciprocity—should be a last resort. Reciprocity arrangements like interstate compacts and endorsement of out-of-state licenses involve states agreeing to accept each other’s licenses as valid or agreeing upon uniform licensing requirements. 22 Such approaches have at least three disadvantages compared to curbing licensing outright. First, reciprocity agreements can effectively cement unwarranted licenses in place. Once states agree to reciprocity arrangements, it becomes harder to reduce or eliminate licensing barriers; partner states may balk at accepting less stringent licenses or alternatives to licensing like certification or registration. Second, to reach agreement, states may settle upon licensing requirements that are too high, needlessly restricting economic opportunities. In the interest of achieving reciprocity and boosting mobility, states may wind up erecting higher barriers for their own workers. 23 Third, reciprocity agreements can lead to unjust treatment of people coming from unlicensed states, shutting out experienced practitioners who have never previously needed a license or requiring them to complete requirements unnecessarily.
Because of these drawbacks, reciprocity arrangements should be limited to occupations where there is a demonstrated need for licensing. Before addressing reciprocity, lawmakers should determine whether licensing a particular occupation is justified and consider whether current licensing barriers are too high. After all, if other states permit easier entry into the occupation, this is evidence that barriers could be lowered or eliminated without resulting in harm. Restricted mobility is the symptom; needless licensing red tape is the disease.
Yet another approach to the interstate mobility problem is state recognition of out-of-state licenses or certifications. Unlike reciprocity, recognition is a unilateral solution: A state simply chooses to allow workers with licenses or certifications from other states to practice, regardless of the requirements other states set. As a result, recognition can enhance mobility without the drawbacks of cementing needless licensing in place or ratcheting up requirements. Unfortunately, recognition of out-of-state licenses or certifications does nothing to help in-state workers stymied by unnecessary licenses or barriers that are too high. Pruning needless licensing requirements therefore remains the first-choice solution.