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Research & Commentary: Excessive Licensing Is Holding Back California’s Economy

April 6, 2018

In this Research & Commentary, Matthew Glans examines a new proposal in California that would explicitly require all licensing rules or ordinances to be demonstrably necessary and carefully tailored to fulfill a legitimate public objective.

History shows onerous occupational licensing laws produce a slew of negative economic effects. When a state imposes a burdensome and excessive licensing regime, the costs of goods increase. Furthermore, business competition is reduced, leading to fewer jobs and lower-quality services. In most cases, these rules are unnecessary and counterproductive because government involvement guarantees neither better nor safer services.

California’s occupational licensing laws are among the most burdensome of all the states. California “requires a license to work in 62 of the low- and moderate-income occupations surveyed -- more than any state but Louisiana and Arizona,” according to a study by the Institute for Justice (IJ). California’s licensing laws are the seventh-most oppressive, and on average, applicants to licensed occupations “can expect to pay $300, lose 549 days to education and experience requirements and pass one exam,” according to IJ’s analysis.

Rolling back excessive certification requirements and imposing voluntary certification are viable options for empowering consumers to choose the best services on their own, thus allowing the free market to self-regulate. By mandating occupational registration, certification permits, and licensure, states often have a strong influence on dozens of industries, making it more difficult for new and existing businesses to operate or expand. Unfortunately, this creates economic conditions wherein cronyism thrives and innovation fades.

Morris Kleiner, professor of public affairs at the University of Minnesota and a chair in labor policy for the AFL-CIO, examined the effects of occupational licensing laws on the price and quality of products and found these laws unnecessarily harm consumers by increasing prices of goods and services without providing any appreciable quality increases in a 2015 article published by The Hamilton Project.

Occupational licensure laws have an especially strong effect on lower-income consumers and entrepreneurs and the licensing process places unnecessary hurdles for jobseekers. On average, low- and medium-income jobseekers in licensed professions are required to spend nine months in education or training, pass an exam, and pay more than $200 in fees, the IJ reports.

Reducing occupational licensing laws increases the likelihood businesses will expand and empowers entrepreneurs to start new businesses—the ultimate engine for economic growth. California legislators should consider the Right to Earn a Living Act (RELA), a model bill written by the Goldwater Institute. RELA would explicitly require all licensing rules or ordinances “be limited to those demonstrably necessary and carefully tailored to fulfill legitimate public health, safety, or welfare objectives.” Assemblyman Kevin Kiley (R-Rocklin) recently inserted RELA-type language into current legislation in the California State Assembly.

The RELA proposal would allow state agencies and local governments one year to review their existing regulations and comply with the new law. After the review period ends, residents can petition for additional changes to specific regulations. If the petition is denied, a legal challenge can be mounted if the rule is found to either burden the creation or market entry of a business, or is not demonstrably necessary to fulfill a legitimate government objective.

Like all states, California should focus on establishing an economic environment for existing industries to expand and new businesses to open. Eliminating unnecessary occupational licensing laws would be a good step toward incentivizing large and small businesses to create additional jobs in the Golden State, altogether benefiting job seekers and consumers.

The following documents examine occupational licensing in greater detail.
 

Right to Earn a Living Act
https://goldwaterinstitute.org/article/right-to-earn-a-living-act/
The Goldwater Institute argues the burdens of occupational liscening in many states are excessive and should not be placed on those who want to earn an honest living; instead, governments should bear the burden of justifying the restrictions. States should enact a Right to Earn a Living Act to protect freedom of enterprise. Doing so ensures that economic opportunity is not merely a promise but a reality.

A Brief History of Occupational Licensing
https://www.heritage.org/government-regulation/report/brief-history-occupational-licensing-0
Paul Larkin of the The Heritage Foundation examines the history of occupational licensing and argues current licensing regimes prohibit individuals from engaging in conduct that poses no risk of harm to any person or to the community.

Bottleneckers Beware: Occupational Licensing Reform Bills Filed Across the Nation
http://ij.org/bottleneckers-beware-occupational-licensing-reform-bills-filed-across-nation/
Matt Powers of the Institute for Justice writes on the growing trend in states to cut back on burdensome occupational licensing laws, which hold back dozens of industries nationwide.

Occupational Licensing: Ranking the States and Exploring Alternatives   
http://heartland.org/policy-documents/occupational-licensing-ranking-states-and-exploring-alternatives
Adam Summers of the Reason Foundation addresses the impact of occupational licensing on the labor market. Service quality and health and safety “may actually be diminished by occupational licensing,” he finds. Through high prices, reduced competition, and arbitrary requirements, the government thus hurts the average consumer and worker. Licensing is for special interests, not public interests, he writes. These laws hurt the poor and minorities disproportionately, he notes, proving the government is not helping those they claim to be.

Occupational Licensing: Protecting the Public Interest or Protectionism?
http://heartland.org/policy-documents/occupational-licensingprotecting-public-interest-or-protectionism
Morris Kleiner reflects on the growth of the strictest form of occupational regulation: licensing. The result is potential job losses and an increase in prices, he finds. The costs of occupational licensing show the practice must be ended or changed, he says, and he proposes certification of occupations which does not limit entry and mobility and may prevent job losses.

The Prevalence and Effects of Occupational Licensing
http://heartland.org/policy-documents/prevalence-and-effects-occupational-licensing
Morris Kleiner and Alan Krueger note research shows nearly 30 percent of the U.S. workforce is required to obtain a license to work. The authors find licensing costs consumers more and reduces their ability to choose services for themselves.

License to Work: A National Study of Burdens from Occupational Licensing
http://heartland.org/policy-documents/license-work-national-study-burdens-occupational-licensing-1
The Institute for Justice conducted a national study to measure how burdensome occupational licensing laws negatively impact low-income workers. The authors found “the barriers imposed by licensure schemes on those wishing to enter the 102 lower-income occupations we studied are not only widespread but often severe, arbitrary and irrational.” The authors conclude, “As millions of Americans struggle to find productive work, one of the quickest ways legislators can help is to simply get out of the way: Reduce or remove burdensome regulations that force job-seekers and would-be entrepreneurs to spend precious time and money earning a license instead of working.”

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Budget & Tax News website, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

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Author
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance. In 2012, Glans was named senior policy analyst.
mglans@heartland.org @HeartlandGR