A practical approach to occupational licensing reform.
Hemphill, Thomas A.
Many Americans, including older adults, lost their jobs and careers
in the last recession. More than a half-decade since that recession
ended, the national labor force participation rate remains stubbornly
near its lowest level in decades. As a result, occupational re-training
and barriers to entry into professions and trades/vocations have emerged
as a public policy concern.
A 2012 study by the Institute for Justice of 102 low- and
moderate-income state-licensed occupations across all 50 states and the
District of Columbia found that 66 have greater average licensure
burdens than emergency medical technician (EMT). On average, a
cosmetologist needed 372 days in training while an EMT needed just
33--with the latter certainly ranking significantly higher in relative
public health and safety risks.
Occupational regulation is the traditional bailiwick of state
governments, with the federal and local governments in a secondary role.
Since the middle of the 20th century, occupational licensing, a subset
of occupational regulation, has been a regulatory growth area for state
governments and an increasing source of public revenue. In 1952, the
Council of State Governments reported that less than 5% of U.S. workers
were required to be licensed to legally perform their occupation. A
recent study by economists Morris Kleiner of the University of Minnesota
and Alan Krueger of Princeton University reveals that, based on 2006
data, approximately 29 percent of all U.S. working adults were required
to possess a government license to legally perform their occupation.
Moreover, in a 2003 study, the Council of State Governments estimated
that over 800 occupations were licensed by at least one state
government.
Washington pushes for reform I The Brooking Institution and the
Obama administration recently began efforts to encourage state reform of
occupational licensing, joining market-oriented think tanks and other
institutions that have long advocated such reform. In March 2015, the
Brookings Institution released a policy brief, Reforming Occupational
Licensing Policies, authored by Kleiner that offers four policy
proposals intended to systematize and harmonize occupational licensing
regulation. He believes the proposals would reduce state-level
regulatory and economic costs while simultaneously increasing employment
opportunities and expanding consumer access to services and goods.
His four proposals include:
* Employ cost-benefit analysis in the evaluation of occupational
licensing. State government regulatory commissions or agencies, in
conjunction with the relevant professional and trade/vocational
associations, would perform cost-benefit analysis on both new and
existing licensing regulations. The analysis would rely on both new and
existing studies. It would also consider the necessity for new
regulation vs. better enforcement of existing regulations, the
possibility of alternative market-based solutions to public regulation,
and the expected effect of proposed licensing on practitioners and
consumers.
* Utilize federal engagement to promote best practices. The federal
government would establish an interagency group to promote best
practices in occupational regulation. States would also be encouraged to
apply for federal grants for evaluating and improving their current
system of occupational licensing.
* Embrace state reciprocity. The state governments would develop
reciprocity agreements to readily accept occupational licenses granted
by other states. Kleiner notes that despite differences in road
conditions and other requirements, state governments already universally
accept other states' driver's licenses when citizens move to
another state; so why shouldn't they also be able to accept
occupational licenses?
* Adopt certification policies as a substitute for licensing. When
the costs of licensing exceed the benefits, state governments should
consider shifting away from licensing to a lesser form of regulation,
such as certification or registration, or even no registration at all.
Along the same vein, in July 2015 the Obama administration released
a report, Occupational Licensing. A Framework for Policymakers, jointly
prepared by the U.S. Department of the Treasury, the Council of Economic
Advisers, and the U.S. Department of Labor. The report reviews the
growth in occupational licensing over the past few decades, its costs
and benefits to American society, and its effects on employment, wages,
and labor mobility. The report also offers a look at an evolving
American workplace, one that is directly affected by the emergence of
ubiquitous information technology ("the Internet") and its
attendant benefits for the American workforce. It also offers a
framework for licensing reforms that includes the following "best
practices" policies that balance licensing that "protects
consumers without placing unnecessary restrictions on employment,
innovation, or access to important goods and services." The
recommendations, many of which echo Kleiner, include:
* Limit licensing requirements to those that address legitimate
public health and safety concerns. In cases where public health and
safety concerns are mild, it recommends using alternative systems that
are less restrictive than licensing, such as voluntary state
certification or registration.
* Apply the results of comprehensive cost-benefit assessments of
licensing laws to reduce the number of unnecessary or overly restrictive
licenses through both sunrise and sunset reviews. Criteria in such
reviews can include: legitimate public health, safety, and similar
concerns; considering existing legal remedies and consumer/reputational
rating mechanisms and other less burdensome regulatory approaches;
evaluating the adequacy of licensing requirements for quality and
protection of consumers; the effect that the license has on practitioner
supply and the price of goods and services; and the administrative costs
of license enforcement.
[ILLUSTRATION OMITTED]
* Within groups of states, harmonize regulatory requirements as
much as possible. This would include interstate compacts that recognize
licenses from other states, thereby increasing the mobility of skilled
workers. The concern, though, is that these compacts would adopt the
licensing requirements of the most stringent participating states. If
agreement on common standards for interstate compacts is difficult,
consider a "two-tiered" licensing structure with more flexible
requirements that would allow states to retain their rules while
permitting interstate reciprocity to workers who satisfy higher
licensing requirements.
* Allow practitioners to offer services to the full extent of their
current competency. Also, avoid categorically excluding individuals with
a criminal record, and instead only exclude those individuals whose
convictions are recent and relevant, and pose a legitimate threat to
public safety.
Yet, despite all of these initiatives, attempts to rein in the
licensing of occupations have not met with much success. Significant
state-level occupational reform in recent years has been rare.
De-licensing / The May 2015 Monthly Labor Review, published by the
U.S. Bureau of Labor Statistics, includes a paper by economists Robert
Thornton of Lehigh University and Edward Timmons of Saint Francis
University investigating the rare phenomenon of what they call
"de-licensing" of an occupation, i.e., "the elimination
of a license as a legal requirement for practicing a particular
occupation." The term "rare" is apt, as the authors found
only eight instances of the de-licensing through state legislative
action over the past 40 years. Even grimmer, in four of those cases,
efforts to re-license the occupations followed soon afterward.
As the authors found in their research, so-called
"sunset" committees (involving legislative audits of licensing
and licensing boards) have on rare occasions recommended that
occupations be de-licensed, but those recommendations usually were
ignored by the legislatures. Occasional bills to de-license occupations
have been drafted, only to languish in committee, fail to be passed by
state legislatures, or go unsigned by governors. Furthermore, the
authors noted several state legislative attempts to collectively
de-license multiple occupations since 2011, with none being enacted.
Thus, the evidence reveals that once an occupation is licensed, it is
likely to remain so forevermore.
Thornton and Timmons have identified several factors responsible
for the existing political economy of licensing. First, the powerful
lobbying resources exercised through professional associations are
effective at resisting de-licensure efforts. Second, such institutional
factors as "regulatory capture," i.e., licensure oversight by
members of the occupation, and "collective choice," i.e., the
costs to the licensed occupation members from de-licensing, are high,
while the benefits to individual members of the public are low and
broadly dispersed. Third, fiscal considerations, such as fees from
licensing, may create net surpluses that legislatures are reluctant to
eliminate. Lastly, the authors note that should delicensing occur, wages
in the profession or occupation/trade may be expected to fall
immediately as new workers with lower qualifications enter the
occupation. Consequently, the organized resistance to delicensing by
licensed practitioners is likely to be considerably greater than
pro-consumer efforts to liberalize these professions.
So, given these significant institutional barriers to occupational
regulatory reform, what are the prospects for the occupational reform
proposals of the Brooking Institution and the Obama administration?
Reform efficacy/ Thornton and Timmons' findings can be summed
up in one word: depressing. The evidence is overwhelming that once an
occupation is licensed, it is virtually impossible to de-license it.
Furthermore, legislative attempts to pass bills that attempt to
de-license multiple occupations are met with highly effective lobbying
efforts, often built around ad hoc coalitions drawing on considerable
political resources. These coalitions can effectively "kill"
occupational reforms at any step in the legislative enactment process.
Moreover, in certain industries, particularly the health care sector, it
is common knowledge that third-party insurers will not reimburse
unlicensed practitioners for their services. Thus, occupational
licensure is the imprimatur for insurance reimbursement. Given this
highly effective special interest group defense against de-licensing
efforts in the legislative or executive arenas, what policies have the
potential for reducing regulation of occupations?
Both the Kleiner and Obama administration reform proposals include
many rational recommendations that would improve the existing
state-level regulatory environment. Realistically, for most occupations
in the higher paying, higher education, health care professions,
licensure is a requirement for both public health and safety risk
criteria and health care insurance reimbursement for services provided.
Moreover, even among moderate- to low-income trades/vocations, a
realistic attempt to delicense should emphasize a move to state
certification and its attendant lower barriers to occupational entry and
entrepreneurial opportunities.
Given this grim reality, policymakers interested in reform should
shift their sights to more modest policy proposals that have a better
chance of being adopted. Toward that end, I recommend the following:
* Emphasize the use of cost-benefit analysis on proposed
legislation to enact licensure of newly emerging occupations. Granted,
cost-benefit analysis has not been the regulatory panacea that analysts
once imagined. Still, it can underscore important issues that
policymakers should consider. Hopefully this will shift the regulatory
assumption toward greater modesty and skepticism about the benefits of
such policy interventions as licensure.
* Utilize state-level organizations and occupational/professional
associations to promote best practices in occupational regulation.
Coordination of state government efforts at reform should take place
among the states through the Council of State Governments and the
representative professional/trade associations. This institutional
structure, because it directly involves the institutional actors in the
regulatory process itself, should be much more effective in coordinating
government efforts to harmonize occupational regulatory requirements
(through so-called model regulatory language) across the states and
develop interstate compacts recognizing licensure reciprocity. Of
course, policymakers should take care that the professional/trade
associations do not circumvent this process, continuing the long,
unhappy history of special interest capture.
* Reassess the scope of practice among existing regulated
occupations to allow for a full range of services to be provided. While
so-called "turf wars" between and among occupations can be
intense, a public airing of such concerns can often result in public
policy solutions that increase competition and service availability and
innovation, thus benefiting consumers. For example, among mental health
care providers, while not without any inter-occupational controversies
over "scope of practice" boundaries, the present environment
does allow consumers a choice among various licensed mental health
providers offering similar services at a range of hourly rates. In the
case of nurse practitioners, however, the full scope of licensed
practice, i.e., independent of direct physician oversight and pre
scriptive authority, has been granted in only 21 states and the District
of Columbia.
Increasing labor mobility, reducing barriers to entry, improving
the climate for service innovation, and increasing consumer choice are
all laudable goals of occupational regulatory reform. But based on the
unsuccessful track record of de-licensing in the United States, more
modest, targeted attempts at occupational regulatory reform should be
considered a major success if adopted and implemented.
READINGS
* "A License for Protection," by Morris M. Kleiner.
Regulation, Vol. 29, No. 3 (Fall 2006).
* A National Study of Burdens from Occupational Licensing,
published by the Institute for Justice. April 2012.
* "Blooming Nonsense," by Dick M. Carpenter II.
Regulation, Vol. 34, No. 1 (Spring 2011).
* Occupational Licensing: A Framework for Policymakers, published
by The White House. July 2015.
* Reforming Occupational Licensing Policies, Policy Brief 2015-01,
by Morris M. Kleiner. Brookings Institution: Hamilton Project, January
2015.
* "The De-Licensing of Occupations in the United States,"
by Robert J. Thornton and Edward J. Timmons. Monthly Labor Review, May
2015.
THOMAS A. HEMPHILL is professor of strategy, innovation, and public
policy in the School of Management at the University of Michigan, Flint
and a senior fellow at the National Center for Policy Analysis.