But there are steps that government can take to liberalize labor markets that would spur economic growth, one reform that even President Obama is on board with: ease occupational licensing requirements.
Just recently, the Bureau of Labor Statistics released new data on occupational licensing. To no one’s surprise, job holders with a certificate or license earned more. This reason is most likely two-fold and does not take away from detractors’ arguments that rigorous licensing requirements should be loosened as to make labor markets more dynamic.
According to BLS data, in 2015, of people 25 and older with a license or certificate, nearly 40 percent also had a college degree. So, one reason why workers with a license earn more is because they are in high paying professions that require high levels of education like “health care practitioners and technical occupations” (72.2 held a license) or “legal occupations” (63.6 held a license).
But more troublesome is that many individuals with a license or professional certificate earn more because of what is known as rent-seeking. Basically, the license acts as a barrier to competition and exists to exclusively benefit the politically connected workers who have already obtained them.
Unsurprisingly, young people with less education trying to join the workforce are harmed most by occupational requirements. As Ben Casselman at FiveThirtyEight notes, licensing requirements have a disparate impact on young people: “The unemployment rate for adults ages 18 to 35 with neither a license nor a college degree was 9.9 percent in 2015; for those with a license (but still no degree), it was 5.2 percent.”
But young people are not only one’s harmed by occupational licensing requirements, “Workers over 45 consistently face longer spells of unemployment when they lose jobs compared with younger workers; unemployment lasts more than 40 percent longer for those without a license.”
Yes, most would like our doctors to go through training and receive credentials to practice, but over the past several decades the number of professions that require occupational licensing has exploded. An Obama administration report found that “[a]round one in four workers are now required to have a license to do their jobs, up from one in 20 in the 1950s.” Most of the growth in licensing requirements is simply that more professions, which have existed for decades, now require it.
For example, it would be hard to imagine in the 1950’s any government requiring landscapers to obtain a license to mow lawns and spread mulch, but 10 states currently do. Louisiana inexplicably requires florist licenses.
There are many ways to improve labor market dynamism, but one reform that both sides seem to agree on is ridding many professions of government mandated license requirements. While some jobs may require credentials due to health and safety concerns, private regulatory boards or trade associations are many times more capable of setting and enforcing standards than government.
However, in most professions there is no health and safety concern, there is just government interference. Individuals should have a right to work and government should not require entrepreneurs to take years and spend resources on a license just to braid hair, sell flowers or take care of lawns.