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Stricter licensing requirements hurt job creation even more

Among the many reforms of North Carolina’s occupational licensing system we at the John Locke Foundation have advocated is one that might seem, well, moot at first glance. It’s a reform for licenses that aren’t repealed or converted into another form of regulation (such as certification) that isn’t an entry restriction on work.

I’m speaking of the “least-cost state” principle advocated in my 2013 report “Guild By Association.” Basically, it is this:

For job categories that continue to be licensed in North Carolina, the boards should examine what other states require of licensees in those jobs and, where another state’s standards are less burdensome on prospective workers (in hours of training, for example, or in licensing fees or in ongoing license renewal), adopt the less burdensome standard.

new study out of Wisconsin illustrates the wisdom of that reform. The study, “Land of the Free? 50 state study on how professional licensing laws lead to fewer jobs,” was written by Will Flanders and Collin Roth for the Wisconsin Institute for Law & Liberty.

The study looks at how occupational licensing’s requirements affect employment, especially in low- to moderate-income professions. Flanders and Roth analyzed ten professions that were widely licensed across the states: aesthetician, athletic trainer, cosmetologist, manicurist, veterinary technician, emergency medical technician, private detective, pest control worker, locksmith, and massage therapist. (North Carolina licenses all of these.)

Then they identified five factors involved in getting licensed in those professions, which could vary among the states. These factors comprised their Red Tape Index:

  • Minimum age required
  • Qualifying exams required
  • Experience required
  • Fees requires
  • Criminal background prohibitions

Flanders and Roth found that the higher an occupation’s licensing scores on the Red Tape Index, the greater its negative effects on employment. This makes intuitive sense. Making something more costly results in fewer people availing themselves of it.

We know that when an occupation isn’t subject to licensing by a state, employment in that occupation grows 20 percent faster than it does in states that do subject it to licensure. Licensing saddles the occupation with real economics costs in time, money, and hassles.

This study shows that extremely costly, fussy licensing has an even greater negative effect on employment.

What this research means for North Carolina

How does North Carolina compare? In their analysis of the red tape involved in states’ licensing these ten low- to moderate-income occupations, North Carolina tested out squarely in the middle of the pack (26th out of the 50 states plus the District of Columbia).

What if North Carolina were to reduce its licensing requirements to the requirements of the least-cost state? Flanders and Roth estimated that those ten occupations in North Carolina could see job growth increased by 5.2 percent.

That’s a mere handful of the many occupations North Carolina licenses, but it ratifies the point about freeing Tar Heel workers from undue licensing restrictions. We could have faster job growth by eliminating unnecessary licenses. We could also see more employment by trimming back undue licensing requirements.

Jon Sanders / Research Editor and Senior Fellow, Regulatory Studies

Jon Sanders studies regulatory policy, a veritable kudzu of invasive government and unintended consequences. As director of regulatory studies at the John Locke Foundation, Jo...