Eliminating barriers to entrepreneurship: Reducing occupational licensing burdens

Sen Doug Whitsett

by Sen. Doug Whitsett

The ability of American workers to learn a trade, or develop a set of skills they can sell either to employers or directly to consumers, is a central tenant of free market capitalism. However, occupational licensure practices originally intended to preserve public health and safety have evolved over the years to provide a form of protectionism for existing businesses. Too often, they now serve to deny and deprive opportunities to would-be entrepreneurs.

Occupational licensure requirements for all 50 states were compared side-by-side in this 2012 report entitled “License to Work: A National Study of Burdens from Occupational Licensing.” The 200 page report was published by the Institute for Justice, a non-profit public interest law firm based in Arlington, Virginia.

The Institute for Justice report states only one in 20 U.S. workers were required to obtain the government’s permission to pursue their chosen occupation in the 1950s. Today, nearly one in three are required to obtain some form of occupational license.

The report confirms these licensure laws can “pose substantial barriers for those seeking work.” Minorities, those of lesser means and those with less education are most likely to experience negative effects.

A key finding of the report is that Oregon licenses more lower-level occupations than most of the other states. Over a quarter of all the jobs in the state require some kind of occupational license.

The report studied approximately 102 occupations. They included jobs recognized by the federal Bureau of Labor Statistics as occupations that are licensed in at least one state where practitioners make less than the national average income.

There are five types of requirements most commonly imposed on licensure applicants: fees, education and training, exams, a minimum age and minimum education grade completed. The study found those burdens are often severe, arbitrary and irrational, and may serve as an artificial barrier to the possibility of new business creation.

The national average for occupational licenses require $209 in fees, one exam and about nine months of education and training. Twenty-nine of the 102 occupations studied require one to three years of education and training and 79 require at least one examination.

On average, those occupations are licensed in just 22 states. This means many of these occupations are practiced elsewhere without government permission and presumably without widespread harm to consumers or the general public.

The average state requires licensure for 43 of the total occupations included in the study. Arizona and California ranked as the most widely and onerously licensed states overall. In Arizona, the average is $455 in fees, 599 days of education and experience and two exams for the 64 occupations licensed by that state.

Oregon workers must obtain a license for 59 different occupations. Overall, the state ranks as the third most broadly and heavily licensed state having the sixth most burdensome licensing laws. The average cost of Oregon licensing fees is $267 with an average requirement of 568 days of education and experience. For example, the Oregon licensing fees for a midwife is more than $2,000 while the national average is only $619. Similarly, the average licensing fees for an athletic trainer is $443, but in Oregon, it’s $900.

The most difficult occupation to enter is interior design even though it is only licensed in three states and Washington D.C. But licensing for that occupation includes a national exam, an average of $364 in fees and an average of 2,200 days of combined education and apprenticeship.

House Bill 3424 was introduced during the Oregon Legislature’s 2015 session, and would have required the state’s Business Development Department to establish a voluntary registry for commercial interior designers and establish minimum education and experience requirements for them to be included in the registry. Fortunately, this bill never so much as received a hearing.

Cosmetology is among the most widely, and inconsistently licensed, occupations. For instance, ten states require four months or more of training for manicurists while Iowa requires nine days and Alaska only three days.

The report found little evidence that the licensing protects public health and safety or even improves the quality of goods and services being offered for sale. It also determined licenses increase costs for consumers and reduce opportunities for workers, especially among minorities, those with less education and older workers trying to switch careers.

One of the report’s most astonishing findings was a total of 66 occupations actually require greater average licensure burdens than emergency medical technicians (EMTs). For instance, the average cosmetologist spends over a year in training while the average EMT is in training for only 33 days!

There is growing recognition of this problem. Even the Obama Administration has acknowledged it in a report released by the White House in July 2015 entitled “Occupational Licensing: A Framework for Policymakers” that was compiled by the Department of Treasury Office of Economic Policy, Council of Economic Advisors and Department of Labor. One passage in that report states “there is ample evidence that States and other jurisdictions should review current licensing practices with an aim towards rationalizing these regulations and lowering barriers to employment.”

Fortunately, some efforts have been made in Oregon over the past few years to try and reduce some of those licensing burdens. Cascade Policy Institute, a Portland area-based think tank, is among the entities that have worked on this issue.

Cascade and its staff assisted a student at Portland State University who was caught in a “sting” operation conducted by the Oregon State Police in 2008. That student had answered an online advertisement looking for someone to help move furniture.

Under state statues in effect at the time, the process for obtaining a license to operate a moving company included a requirement that the Oregon Department of Transportation notify all existing moving companies and allow them to object. Applicants would then have to prove a public need existed for a new business before they could perform the work. When existing companies objected, the application were uniformly denied. Every company that had applied for such a license during a two-year period was denied based on those objections.

A lawsuit was filed in federal court on the student’s behalf, claiming that the licensing system violated the student’s 14th Amendment rights and provided an unequal and unconstitutional protectionist advantage to established companies.

The Legislature passed House Bill 2817 in response to the lawsuit during its 2009 session. The passage of that legislation rendered the lawsuit moot, as the underlying issues that prompted it were largely resolved by the change in the law.

The new law eliminated the likely unconstitutional requirement while keeping in place statues requiring that applicants be insured and be able to pass a background check. This ensured the industry and its practitioners would continue to be regulated to safeguard public health and safety, but could now be free to start a business without asking for permission from competitors.

Similarly, a bill was passed in the 2013 session that deregulated hair braiding in the state.

We use these two examples to illustrate how it is possible, and even advisable, for the Legislature to enact laws that can reduce the licensing burdens faced by individuals and businesses as they attempt to earn a livelihood. These very limited instances demonstrate how it is possible to use common-sense regulatory approaches to enhance the public interest while maintaining the entrepreneurial spirit that helped build this nation’s middle class and has provided the highest standard of living in the entire history of human civilization.

Senator Doug Whitsett is the Republican state senator representing Senate District 28 – Klamath Falls