Trump's Economic Report Absolutely Right About the Need for Occupational Licensing Reform

By Adam Thierer & Trace Mitchell
February 27, 2020

The Council of Economic Advisers (CEA) recently released its annual report in conjunction with President Trump’s Economic Report. In the joint document, the CEA discussed everything from wages and consumer spending to regulatory reform and economic growth. While spending a good deal of time boasting about the current state of the economy under the Trump administration, it also highlighted a very important and often significantly under-discussed challenge facing a growing number of Americans: overly burdensome occupational licensing.

 

Every year, the CEA releases this report for the purpose of providing the public with an overview of the present state of the U.S. economy and an analysis of the administration’s policies going forward. Being an agency within the Executive Office of the President, the CEA typically uses a significant amount of the report to brag about how well the economy is doing under the current administration. However, it also provides key insights regarding the administration’s priorities and where it plans on focusing its resources in the coming years.

 

This year, the report focused on a number of challenges facing both workers and the economy more broadly. Particular emphasis was placed on the need to drastically improve interstate worker mobility. As part of this initiative, the report discussed the problems created by excessive occupational licensing restrictions and called states to action, as this issue is almost exclusively within their domain.

 

The prevalence of occupational licensing has grown exponentially over the past century. In the 1950s, around 5 percent of the workforce needed to obtain a license before engaging in their particular line of work. That number is now approaching 30 percent. A large body of research has documented the exorbitant cost of these burdensome licensing requirements and the negative effects they have on workers and consumers alike. It is estimated that occupational licensing serves as a hidden tax on consumers of between 3 to 16 percent, costing them up to $203 billion dollars, and that these restrictions have resulted in up to 2.85 million fewer jobs nationwide. There is also evidence that these costs fall disproportionately on the poor and disadvantaged. This may be why we have seen such bipartisan support for occupational licensing reform ranging from Barack Obama, Joe Biden, and Hillary Clinton to President Trump and Arizona Governor Doug Ducey.

 

While the report touches on many of these issues, its primary focus is on the impact that occupational licensing has on worker mobility. It correctly notes that “workers in licensing occupations see the largest reductions in interstate migration rates” and that “state-by-state occupational licensing laws prevent workers from being able to provide their services across State lines, or move to another State to work in a licensed profession.”

 

This reduction in mobility is the direct result of how costly and time consuming it is to obtain an occupational license. On average, it takes individuals in lower-income occupations a year of education and experience, one exam, and up to $267 in fees to obtain a license. This serves as a massive barrier to movement and provides a major disincentive for individuals to relocate to a new jurisdiction. They would have to expend significant amounts of time and resources just to get the state’s permission to do what they were already doing. The report notes that this can be particularly burdensome for military spouses who are 10 times more likely to move across state lines. This may be part of the reason why the unemployment rate for military spouses is up to six times higher than the national average.

 

Luckily, there are solutions! The most comprehensive way to deal with the mobility problems created by occupational licensing is to combat the licensing itself. States like Arizona and Nebraska have undertaken large-scale efforts aimed at curbing the practice of occupational licensing across the board. These reforms are very promising and go a long way in combating the holistic cost that can be posed by overly burdensome occupational licensing regimes.

 

However, there are also more limited and direct ways to deal specifically with mobility problems. In 2018, the Federal Trade Commission released a report laying out the many different options that states can adopt to enhance license portability. They can unilaterally recognize out-of-state licenses, enter into reciprocity agreements and interstate compacts, or provide an expedited process for individuals who have already obtained a license from another jurisdiction. In addition, states can harmonize their laws to make compliance easier for potential applicants.

 

At a time when partisanship is on the rise and it seems like there is less and less common ground between the different sides of the political spectrum, there is one thing we should all be able to get behind: Government should be in the business of lowering the barriers that reduce worker mobility and prevent people from making their lives, and the lives of those around them, better.

 

Adam Thierer is a senior research fellow at the Mercatus Center at George Mason University. Trace Mitchell is a research associate with the Mercatus Center’s Project on Innovation and Governance.

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