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Research & Commentary: Occupational Licensure Reform in Nebraska

October 19, 2017

In this Research & Commentary, Matthew Glans examines occupational licensing and a proposed reform plan in Nebraska.

Nebraska has some of the most obtrusive state laws governing the regulation of occupations. According to the 50-State Small Business Regulation Index, Nebraska’s occupational licensing rules are ranked among the 10 worst in the country. By regulating occupations through 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.

While only covering a small number of businesses for decades, since 1950, the number of businesses covered by occupational licensing has grown dramatically across the United States. According to the Institute for Justice, one in 20 U.S. workers needed the government’s permission to pursue their chosen occupation in 1950. Now, the number has increased to nearly one in three.

Licensure is becoming a significant problem in Nebraska; about 25 percent of the jobs in the state require a government license.

The Nebraska-based Platte Institute argues the state licensure requirements are a hidden tax on businesses and consumers. More than 200 jobs require a license in Nebraska, creating an additional cost of $1,000 each year on services for consumers.

The Nebraska Legislature will soon reexamine a law that, if passed, would allow the state’s legislature to take a closer look at Nebraska’s licensing law and determine if the licenses are needed to protect public safety or if less stringent alternatives are more appropriate. The bill, titled the Occupational Board Reform Act, would require the state to conduct a comprehensive evaluation of all occupational licenses required in nearly 200 professions.

The proposed law would also create an Office of Supervision of Occupational Boards to review and approve proposed occupational licenses and exercise control over an occupational board by reviewing the occupational board’s rules, regulations and enforcement action.. The bill would also give workers the ability to file complaints to the new office and would create a Legislative Office of Occupational Regulations to review newly proposed occupational licenses.

Burdensome licensing laws can have a wide-ranging effect on a state’s economy. When a state imposes a far-reaching and unnecessary licensing regime, competition shrinks and the price of basic services increases. In many instances, these laws are unnecessary; government involvement does not guarantee better or safer services. Rolling back excessive certification and using voluntary certification are viable alternatives that empower consumers to choose the best services on their own, allowing the free market to self-regulate.

In a 2015 article published by The Hamilton Project, Morris Kleiner, a 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.

“[O]ccupational licensing transfers income from consumers (in the form of higher prices) to licensed workers (in the form of higher wages) with no apparent impact on reducing variations in earnings,” Kleiner wrote. “In fact, standard economic models imply that the restrictions from occupational licensing can result in up to 2.85 million fewer jobs nationwide, with an annual cost to consumers of $203 billion. In addition, evidence suggests that occupational licensing can result in a loss in overall output of about 0.1 percent of annual consumption expenditures.”

Occupational licensure laws have an especially strong effect on lower-income consumers and entrepreneurs. “Those who can least afford it must endure the double whammy of paying higher prices as consumers and being shut out of job opportunities by costly regulations,” Adam Summers of the Reason Foundation wrote. “Laws that make it more difficult for them to obtain certain jobs or start their own businesses only make it that much harder for them to work their way up the economic ladder.”

The licensing process places unnecessary hurdles for jobseekers. According to the Institute for Justice, 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. And many of these laws have had the effect of restricting minority entry into professions, as proven by the severe drops recorded by researchers in the number of African-American plumbers in states after their lawmakers enacted plumbing licensing laws.

Like all states, Nebraska needs to create more jobs for its citizens. Loosening its tight occupational licensing laws is a good step toward opening up additional industries for expansion and empowering entrepreneurs to start their own businesses, the ultimate engine for economic growth.

The following documents examine occupational licensing in greater detail.
 

2017 Occupational Licensing Review: Progress and Barriers to Creating More and Better Jobs
http://www.platteinstitute.org/library/doclib/2017-Occupational-Licensing-Review.pdf
In this Policy Brief, Sarah Curry of the Platte Institute examines Nebraska’s occupational licensing regime, how the state is moving toward reforming these laws, and the obstacles these reforms have faced.

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 examines the growing trend in states to cut back on burdensome occupational licensing laws, which hold back dozens of industries nationwide.

Occupational Licensing: Another Government Obstacle to Earning a Living
http://news.heartland.org/newspaper-article/2012/08/15/occupational-licensing-another-government-obstacle-earning-living
Byron Schlomach, director of the Center for Economic Prosperity at the Goldwater Institute, addresses the growing problem of occupational licensing. He demonstrates licensing makes services more expenses while limiting people’s ability to enter a chosen profession. Reforms that would improve competition include right-to-earn-a-living legislation, the ability to vet and repeal hindering licenses, and many more.

We’re All Licensees Now
http://www.mackinac.org/article.aspx?ID=5570
Jack McHugh of the Mackinac Center documents the lack of evidence behind the claims of a need for occupational licensing. “Protecting the public” is the disguise the government uses to impose unfair regulations that hurt consumers and workers, he writes. In a specific example, he notes the average citizen of Michigan usually loses as a result of licensing laws.

Does Occupational Licensing Make Sense?
http://www.cato.org/blog/does-professional-licensure-work
Licensing limits the quantity of services, making prices rise for consumers. These laws restrict consumers’ choice in services and prevent provision of high-quality services at a lower price. A study on nurse practitioners and doctors proves this point.

Case Example: Occupational Licensing Unveiled—It’s Huge
http://heartland.org/policy-documents/case-example-occupational-licensing-unveiled-its-huge
Occupational licensing has increased dramatically in recent years. There is little evidence these laws protect the public or improve the quality of services. The restrictions hinder competition within professions and fail to produce the results the government claims. It is crucial to establish a check-and-balance mechanism to ensure licensure laws are actually effective. Otherwise, consumers pay for the unnecessary increased regulation.

Occupational Licensing: Ranking the States and Exploring Alternatives       
http://heartland.org/policy-documents/occupational-licensing-ranking-states-and-exploring-alternativesAdam 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 say they are.

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 Costs and Benefits of Occupational Regulation
http://heartland.org/policy-documents/costs-and-benefits-occupational-regulation
Carolyn Cox and Susan Foster demonstrate “occupational licensing frequently increases prices and imposes substantial costs on consumers.” Although licenses are allegedly imposed for the consumer, they are usually not in the consumer’s best interest. It is crucial to understand the costs of licensing and not just look to the potential benefits, they write. Instead of increasing public health and safety, licensing causes high prices and a lack of competition while not improving the quality of services.

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 are for 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