March 24, 2020
From plumbing and floral arranging to landscaping and interior designing (and many others), Americans face government-imposed barriers to work in a wide range of professions. No matter how qualified someone is, Americans must re-apply for permission to work when they move to a new state. That’s a costly and unnecessary barrier for countless Americans to earn a living—and it’s one that falls particularly hard on low-income Americans.
A new report out from the Goldwater Institute examines the ways in which onerous licensing requirements hurt low-income Americans and how state lawmakers can help fix this problem. Here are five important takeaways from this new research:
About one out of three Americans needs the government’s permission to work. Depending on the state, one out of three Americans needs the government’s permission to work. Back in the 1950s, only 5% of the workforce was required to hold an occupational license. Today, that number has shot way up: From state to state, between one-fourth and one-third of the workforce needs a license—a government permission slip just to be able to do their job.
Defenders of this exponential increase—oftentimes the occupational licensing boards and insiders themselves—argue licensing protects the public’s health and safety. But many of the professions licensed by some states have nothing to do with keeping people safe. Instead, in many instances, licensing is more about protecting industries than protecting the public. (Read Goldwater Institute National Investigative Journalist Mark Flatten’s recent research on this topic here.)
Government barriers to work have a disastrous effect. Licensing requirements vary from state to state—and in the vast majority of states, a worker can’t carry their existing license with them to another state. Every time they move across state lines, they have to spend more time and more money to get licensed in their new home. That means they’re subject to a new licensing board, which imposes new requirements to allow them to continue in their career.
Statistics on licensing requirements paint a pretty grim picture for American workers. These requirements cut down on interstate migration, and one study shows that licensing requirements shrink annual wages by more than $350 million. There’s also evidence that occupational licensure suppresses entrepreneurship.
For low-income Americans, the effects are especially bad. All of these effects hit low-income individuals and families especially hard. Low-income Americans are those least able to afford the time and money needed to get re-licensed each time an opportunity across state lines comes up. Having to meet a state’s licensing requirements upon moving there hampers low-income Americans’ ability to take advantage of a job opportunity that arises in another state—in some cases, it may simply be a bridge too far.
In a 2015 report by Stephen Slivinski, increased occupational licensing burdens were significantly associated with decreased entrepreneurial activity—and the impact on low-income people is especially great. In fact, states that license 50% or more of low-income occupations averaged 11% lower entrepreneurial activity than average, while states that license less than one-third have 11% higher entrepreneurial activity than average.
Low-income Americans pay the price as consumers, too. Low-income Americans are hit doubly hard by licensing requirements—not just as workers, but also as consumers. Current estimates predict that $203 billion per year is spent by consumers due to burdensome occupational licensing. This trend is especially dangerous when considering how people spend their money. Those residing in the bottom 20% of the income distribution spend a larger share of their income on items considered necessities—housing, food, and transportation, for instance—while a lesser share of their income is spent on insurance, retirement, education, clothing, and luxury items.
This means that occupational licensing laws that make services more expensive for everyone disproportionately hurt low-income families because a larger share of their income is spent on these services—services like healthcare (nurses and physicians), dental care (dentists, hygienists, and assistants), emergency medical services, insurance, plumbing, and HVAC work. The additional expense that many middle, upper-middle, and wealthier classes incur because of licensure in these occupations goes largely unnoticed. But for a family of four making less than $40,000 per year, these costs are not as easily ignored.
Goldwater’s Breaking Down Barriers to Work Act is a solution. Fortunately, there is a way that states can help low-income workers. The Goldwater Institute’s Breaking Down Barriers to Work Act is a state law that recognizes a person’s license earned in another state, so those who have been competently and safely practicing their trade or profession are not required to obtain new licenses just because they move across state lines.
In 2019, Arizona became the first state to enact the Breaking Down Barriers to Work Act, and since then, Pennsylvania, Ohio, Utah, Idaho, and Indiana have passed versions of the bill. Already, the positive impacts of breaking down barriers to work are becoming clear: To date, more than 800 people have taken advantage of the new Arizona law, so they can continue working in the Grand Canyon State.