Occupational licensing is a form of regulation that requires a person to register with the government, achieve training, pay fees, and often complete an exam before being allowed to perform a job or vocation. The intended goal of occupational licensing is to ensure public health and safety by mandating quality in a profession.
However, the reality is that individuals in an industry with a license use licensing requirements to limit and prevent competition so more money is in their pockets at the expense of consumers and potential entrants.
The rate of occupational licensure in the U.S. has more than quadrupled since 1950, increasing from less than 5 percent in 1950s to 29 percent in 2008 to 21.5 percent in 2017. More than 1 in 5 Americans must obtain a license from the state, local, or federal government to work in a particular occupation.
This increase in occupational licensing has happened as union participation has declined. For example, Figure 1 shows the tradeoff between the increase in licensed occupations and the decline in union participation from more than 30 percent in the 1950s to 10.7 percent in 2017.
Figure 1: Tradeoff Between Union Participation and Licensed Occupations
This tradeoff has kept a similar share of the labor force under the guise of government planning instead of allowing freedom in labor markets.
Keeping an occupation licensed is associated with a large increase in those wages, sometimes as high as 14 percent. This increase is primarily from a lack of competition, which allows licensed professionals to charge higher rates for their services. Professionals in an industry often will expend their profits, earned at the expense of consumers and the excluded competition, to make a license harder to obtain. Economists call this rent-seeking behavior that destroys economic prosperity.
For example, research finds that licensing resulted in 2.85 million fewer jobs with an estimated cost of $203 billion per year. In addition, Figure 2 presents data from other research finding that employment in 10 licensed profession could see an almost 6 percent increase in Texas if licensure requirements were reduced and 4.5 percent, on average, nationwide.
Figure 2: Occupational Licensing Hinders Job Creation
While hindering job creation and associated prosperity may be a price worth paying for public health and safety, most licensed professions don’t present a danger to the public and, as such, should not be regulated by the state.
For example, in order to become a cosmetologist in Texas, you need to complete 350 days of training and pay a $178 fee to receive your license. To be an emergency medical technician, you need to complete only 33 days of training and pay a $134 fee. It's shocking that the employees at the local hair salon are more highly regulated than the men and women who are responsible for saving lives every day.
In summary, occupational licenses allow incumbent license holders to prevent competition, increase the costs of services that consumers shoulder most of the burden, and provide little public safety. Occupational licensure is in dire need of reform in order to promote the prosperity of Texas and all Americans.