Both Sides Support Occupational Licensing Reform. Now What?
Since the 1950s, the portion of U.S. workers who need to obtain a license before engaging in their line of work has increased by more than 450%. These restrictive licensing regulations have slowed national economic growth and serve as a significant barrier to entrepreneurialism. In fact, the Upjohn Institute for Employment Research estimated that overly-burdensome licensing regimes have cost the American economy 2.85 million jobs. Moreover, according to a National Bureau of Economic Research report released in October, occupational licensing regulations have significantly diminished the welfare of both consumers and workers alike and have reduced employment in licensed professions by up to 29%.
Understandably, these economic woes have served as a catalyst for bipartisan support for reform. Politicians on both sides are looking for ways to encourage entrepreneurialism and growth in sectors burdened by excessively restrictive regulations. What occupational licensing reform would specifically entail is up for debate, but there are plenty of options.
Here are three.
#1) Create a constitutional or statutory “right to earn a living”
In states, the “right to earn a living” is a legislatively created cause of action that allows people to sue the government if they feel it has unnecessarily infringed upon their ability to earn a livelihood through overly burdensome occupational licensing regulations. One major benefit is that it allows the judiciary to provide an institutional check on policymakers. In 2017, Gov. Doug Ducey signed into law Senate Bill 1437 and made Arizona the first state to implement this type of reform. Arizona has repealed over 1,000 regulations since its implementation, saving businesses upwards of $79 million. These savings can help businesses expand operations and create new jobs.
The “right to earn a living” is most effective when it’s paired with heightened judicial scrutiny. Imposing a stricter standard on judicial decision-making shifts the burden of proof onto the government, requiring them to show that the occupational licensing regulation is serving a significant governmental interest and is narrowly tailored to serve that interest.
#2) Impose a “least-restrictive means” requirement
One of the most critical licensing reforms is the “least-restrictive means” requirement, which forces policymakers to pick the least burdensome licensing option. The first step in implementing a least-restrictive means requirement is creating a scale of regulatory measures that range from least to most restrictive. Consider the least-restrictive means scale that the Nebraska legislature established in 2018:
- Market competition
- Third-party or consumer-created ratings and reviews
- Private certification
- Specific private civil cause of action to remedy consumer harm
- Deceptive trade practices under the Uniform Deceptive Trade Practices Act
- Mandatory disclosure of attributes of the specific goods or services
- Regulation of the process of providing the specific goods or services to consumers
- Bonding or insurance
- Government certification
- Occupational license
This reform could significantly boost entrepreneurialism and economic development within a state. The Upjohn Institute estimates that occupations have a 20% lower growth rate in states where they’re licensed. Reforms like this, then, allow businesses and sectors to grow while ensuring licenses can still exist in the areas where they are truly needed.
#3) Provide an opt-out option
Allowing consumers to “opt-out,” using an unlicensed provider disclosure, is another major reform that circumvents most of a state’s burdensome occupational licensing system. Creating an opt-out option allows consumers to sign a waiver acknowledging that they know their specific provider doesn’t have a state license and that they’re choosing to work with them anyway. Opt-out options give greater autonomy to both providers and consumers of most licensed services while ensuring that providers aren’t misleading their customers.
This reform would be particularly beneficial for the disadvantaged communities that currently bear the costs of these overly restrictive regimes, as it’s much more difficult for them to go through the expensive and time-consuming process of obtaining a license. For example, a report conducted by the Institute for Justice found that the average license for low-income occupations requires “nearly a year of education or experience, one exam, and more than $260 in fees.” Reforming occupational licensing would give businesses the freedom to employ those who are most in need of meaningful employment.
To increase entrepreneurship, more state legislatures should consider these licensing reforms. At the very least, policymakers must commit to the principle that you shouldn’t need a license to earn a living.