August 29, 2016 | Commentary on Property and Economic Rights

Two Helpful Developments Aimed at Curbing Anticompetitive Protectionist Occupational Licensing Restrictions – Harbingers of Reform?

Background

Recently, an increasing amount of scholarship has focused on the excessive costs of occupational licensing, which too frequently serves merely as a protectionist state-created barrier to entry that arbitrarily prevents individuals (and, in particular, low-income individuals) from earning a living in their chosen field.  A 2015 White House report explains that occupational licensing restrictions have rapidly proliferated over the last six decades.  It notes that, while carefully crafted licensing schemes “can benefit consumers through higher quality services and improved health and safety standards”, too often licensing has been imposed without regard to its economic costs, in a manner that harms both workers and consumers:

Over the past several decades, the share of U.S. workers holding an occupational license has grown sharply.  When designed and implemented carefully, licensing can offer important health and safety protections to consumers, as well as benefits to workers. However, the current licensing regime in the United States also creates substantial costs, and often the requirements for obtaining a license are not in sync with the skills needed for the job. There is evidence that licensing requirements raise the price of goods and services, restrict employment opportunities, and make it more difficult for workers to take their skills across State lines. Too often, policymakers do not carefully weigh these costs and benefits when making decisions about whether or how to regulate a profession through licensing. In some cases, alternative forms of occupational regulation, such as State certification, may offer a better balance between consumer protections and flexibility for workers. . . .

[What’s worse,] [m]ore than one-quarter of U.S. workers now require a license to do their jobs, with most of these workers licensed by the States. The share of workers licensed at the State level has risen five-fold since the 1950s.  About two-thirds of this change stems from an increase in the number of professions that require a license, with the remaining growth coming from changing composition of the workforce. . . .

Research shows that by imposing additional requirements on people seeking to enter licensed professions, licensing can reduce total employment in the licensed professions.  Estimates find that unlicensed workers earn 10 to 15 percent lower wages than licensed workers with similar levels of education, training, and experience.  Licensing laws also lead to higher prices for goods and services, with research showing effects on prices of between 3 and 16 percent. Moreover, in a number of other studies, licensing did not increase the quality of goods and services, suggesting that consumers are sometimes paying higher prices without getting improved goods or services.

Articles by Heritage Foundation scholars have explored the public choice explanations for licensing schemes (see here for a fulsome treatment of this topic by Paul Larkin) and discussed possible constitutional (equal protection) and antitrust theories that might be deployed to challenge blatantly protectionist licensing schemes (for example, see here for a Legal Memorandum by Paul Larkin and me and see here for a law review commentary by me).

Lawsuits challenging purely protectionist occupational licensing restraints certainly merit being pursued.   Realistically, however, such suits can at best only slightly constrain harmful occupational licensing, given the costly, case-by-case nature of litigation and doctrinal limitations on the application of antitrust and constitutional theories.  The widespread repeal (or substantial reform) of harmful state occupational licensing laws is the ideal long-term solution to the problem, but political constraints (the self-interested coalitions representing occupational cartels may be expected to oppose such change) suggest that state legislative reform will move slowly in the near term.

There are, however, two very recent legislative developments that give cause for hope – the public release of the Allow Act and the Model Occupational Board Reform Act.  Properly publicized, they may become the focus of reform discussions and prove to be harbingers of future legislative initiatives aimed at reining in excessive licensing restraints.

The Allow Act

The Allow Act, co-sponsored by Senators Mike Lee (R-UT) and Ben Sasse (R-Neb) and introduced in the Senate on July 12 (they also participated in a program at Heritage that day discussing the issue), “would make it easier for many Americans to begin work in their chosen field by reducing unnecessary licensing burdens.”  The Allow Act has three principal features, summarized by Senator Lee:

The Alternatives to Licensing that Lower Obstacles to Work (ALLOW) Act reduces the anticompetitive impact of unjustifiable licensing requirements by making targeted changes to licensure policies.  The Act:

Serves as a model for reform in the states by limiting the creation of occupational license requirements in the District [of Columbia] only to those circumstances in which it is the least restrictive means of protecting the public health, safety or welfare, and makes it District policy to limit the enforcement of a license requirement only to the sale of those goods and services expressly listed in the statute or regulations defining an occupation’s “scope of practice.” Promotes less restrictive requirements, such as public and private certification. Provides for the creation of a dedicated office in the District Attorney General’s Office, or within each relevant District agency, responsible for the active supervision of occupational boards.  Provides for legislative oversight, with a “sunrise review” when considering new proposed licensing requirements to evaluate the possible negative impacts on workers and economic growth, along with possible less restrictive regulations. And provides legislative “sunset review,” which applies the same analysis of net benefits and possible alternatives to existing occupational licensing laws in the District, with the goal of reviewing all such laws and proposing appropriate modifications over a five year period.

Harmonizes occupational entry requirements by providing endorsement on military bases of occupational licenses and public certifications issued in any state in order to promote workforce attachment for military spouses who are disproportionately affected by the patchwork of state licensing laws as they move with their enlisted spouse from post-to-post.  This approach will increase workforce mobility and labor market efficiency.

Emphasizes certification as an alternative approach to licensure by eliminating the need to obtain prior government approvals to speak about our Nation’s military, political and cultural history while offering tour guide services for a fee within National Military Parks and Battlefields, or the National Mall and Memorial Parks.

The Model Occupational Board Reform Act

The Model Occupational Board Reform Act (Model Act), developed by the American Legislative Exchange Council, has four key features:

The State will use the least restrictive regulation necessary to protect consumers from present, significant and substantiated harms that threaten public health and safety.

An occupational regulation may be enforced against an individual only to the extent the individual sells goods and services that are included explicitly in the statute that defines the occupation’s scope of practice.

The attorney general will establish an office of supervision of occupational boards. The office is responsible for actively supervising state occupational boards.

The legislature will establish a position in its nonpartisan research staff to analyze occupational regulations. The position is responsible for reviewing legislation and laws related to occupational regulations.

In short, the Model Act enlists state attorney generals’ offices (which typically also enforce state antitrust laws and have some familiarity with justifications for promoting competition) in actively supervising state occupation licensing boards.  This is in harmony with the Supreme Court’s 2015 North Carolina Dental Board decision, which upheld antitrust scrutiny of boards that are not actively supervised.  The Model Act also places an onus on state regulators to curb the breadth of the application of licensing rules, and to specially scrutinize new laws that affect occupational licensing.  Overall, then, the Model Act takes constructive steps to limit the scope of harmful occupational licensing restrictions, in a manner that may prove politically more feasible than wholesale statutory repeal.  (Another hopeful sign is the recent introduction of various types of occupational reform proposals in various states.)

Conclusion

Although the plague of proliferating harmful protectionist occupational licensing restrictions is still with us, we may be approaching a turning point.  Recent scholarship on the substantial harm of such restraints, and, in particular, their burden on lower income Americans seeking employment, has come to the attention of policymakers.  As a result, legislative efforts to curb the overregulation of occupational licensing are being developed and are receiving public attention.  Although we are far from winning the war on welfare-inimical occupational licensing, perhaps this is “the end of the beginning” of the public policy struggle.

About the Author

Alden Abbott Deputy Director of the Edwin Meese III Center for Legal and Judicial Studies and the John, Barbara, and Victoria Rumpel Senior Legal Fellow
Edwin Meese III Center for Legal and Judicial Studies

This piece originally appeared in Truth on the Market.