Is Occupational Licensing is the New Poster Child for Regulatory Reform?

August 21, 2014

Yesterday Congressman Sam Graves (MO), who chairs the Committee on Small Business in the U.S. House of Representatives, sent a letter to the Small Business Administration’s Office of Advocacy asking the agency to study the “rise of occupational licensing across states and the economic effects of licensing on entrepreneurs and would-be entrepreneurs.”

Congressman Graves points out that today nearly 30% of occupations are licensed at the state level, or about one in three occupations.  In 1950 fewer than 5% of all occupations (one out of 20) were licensed.  One study pegs the total cost of licensing regulations to the economy is between $34.8 billion to $41.7 billion per year. 

Small business advocates claim the increase in occupational licensing is strangling small business owners and discouraging would-be small business owners.  In fact, the Federal Trade Commission (FTC) testified last month before the Committee that while some licensing requirements protect consumers, often they simply serve to “discourage new entrants, deter potential competition from professionals in related occupations, and suppress innovative forms of service delivery that could challenge the status quo.”

The FTC said the monetary and training requirements to obtain many occupational licenses is simply a way for those professions to protect those already working in the industry.  The higher the fees and more extensive the training, the more difficult it becomes for new entrants to break into those professions.  Those barriers to entry mean less competition and higher prices.   Indeed, the FTC notes that occupational licenses are associated with a 17% increase in earnings by members of the occupation. 

Small business owners around the nation seem to share the FTC’s views that protectionist occupational licensing requirements are an obstacle to a business’s growth and job creation.  In a recent “Small Business Friendliness” survey of 12,000 small business owners, the friendliness of professional licensing requirements was the most important regulatory issue in determining a state's overall friendliness to small businesses. 

In that survey, Washington state’s small business owners gave the state a lackluster “C” grade for licensing friendliness and a woeful D+ for business regulations in general. 

Not coincidentally, a study released in 2012 by the Institute for Justice (IJ) ranked Washington as the 19th most broadly and onerously licensed state.  Washington earns the dismal ranking because of the number of occupations licensed, combined with the fees and training requirements associated with those licenses.  The state licenses 54 of the 102 low- to moderate-income occupations studied, and averages $152 in fees and 199 days in required training.

The IJ study notes that Washington “licenses some occupations more onerously than appears warranted by concern for public safety.”  The study points to the fact that only 26 days of training are required to become an emergency medical technician, while massage therapists must undergo 117 days of training (more than four times as much), and manicurists and skin care specialists must complete 140 days of training (five times as much).  Meanwhile, it takes 233 days of training to become a barber and 373 days to become a cosmetologist. 

Unfortunately, it does not appear that Washington State will ease the occupational licensing burden any time soon.  In 2005 the state Department of Licensing said natural hair braiders do not need to obtain an occupational license to practice their craft.   The state has reversed course and now says hair braiders in Washington must obtain a cosmetology license.  To obtain a cosmetology license one must spend an average of $13,748 (this does not include books and supplies) to complete 1,600 hours of cosmetology school—even though the course curriculum does not include even one minute of hair braiding.  As the Institute for Justice, which has filed a lawsuit challenging the new requirement, notes, the 1,600 hours of training is “more than ten times the number of hours required to become an animal control officer, emergency medical technician and a security guard—combined.”