Occupational Licensing Hinders the American Dream

More than a quarter of the American labor force requires a state license to work, a five-fold increase since the 1950s. Occupational licensing imposes restrictions on competition in every reach of the modern economy — with pernicious effects.

According to a report issued by President Obama’s Council of Economic Advisors, such laws have been estimated to cost millions of jobs nationwide and raise consumer expenses by over one hundred billion dollars. The impact is felt most by those who can least afford it. For instance, unnecessary and expensive educational requirements prevent upward mobility, and poor consumers can find necessities from haircuts to plumbing out of reach. What’s more, the patchwork of state licensing regimes poses a significant barrier to practicing one’s occupation across state lines, which can be especially costly to military families.

Self-interested incumbent companies lobby for these laws to keep out competition. Indeed, in many instances, the entity that governs the licensing process is not independent and accountable to the public, but merely a board of appointed practitioners who participate in the same market they are ostensibly tasked with regulating and benefit from keeping out upstart rivals.

Government action to limit the number of competitors operating in a market, or raise the cost of entry by requiring entrants to obtain credentials, increases prices and reduces output for consumers. The harm imposed by occupational licensure is very real. One team of economists estimates in a recent working paper that the introduction of the UberX service — which would be prohibited under a legacy taxi medallion licensing system — generated $6.8 billion in consumer surplus in the United States in 2015.

Read more of this Real Clear Policy op-ed by James C. Cooper, Koren Wong-Ervin, and Joshua D. Wright by clicking here.

Photo: AP Photo/Andrew Selsky