Commentary

Licensure Mandates Cost Michigan Jobs And Millions In State Revenue

Job restrictions also have disparate impact on youth and minorities

Michigan could put more people to work and add $746.2 million to state and local government treasuries by reforming or eliminating occupational licensure mandates — dwarfing the $195 million governments here currently collect in licensing fees. That’s one of the findings of a recent study by a Massachusetts nonprofit.

The study also found that costly and burdensome occupational licensing requirements don’t just keep some people out of certain industries; they also may result in lower overall revenue for the governments that impose the mandates. The report, published by the Pioneer Institute for Public Policy, is called How Occupational Licensing Hurts State and Local Tax Revenues: The Public Finance Case for Occupational Licensing Reform.

Licensing laws in this country have grown dramatically over the last 70 years, it says. In 1950, only 5% of people in the U.S. workforce had to get a license in order to practice their trade or profession. Today, 25%-30% of all workers must overcome significant and sometimes excessive licensure hurdles, according to a Pioneer Institute statement.

While occupational licensure was ostensibly created to protect public health and safety, the study argues that’s not what it does.

“Instead, overly broad occupational licensing regulations serve to protect those who currently work in an industry from competition by keeping new workers out,” it explains. “Licensing boards impose large fees and expansive education and training requirements inconsistent with the health and safety implications of the job.”

The study also found that in some industries where more lower-income people are employed, licensure’s barriers to entry have “disparate, negative impacts on young people, ethnic minorities, and military spouses.”

Licensure mandates are also making it harder for ex-convicts to reenter the workforce, the report found, which increases crime and recidivism rates.

To illustrate the unintentional consequences of these laws, it compared the criteria for two occupations in Massachusetts: cosmetologist and emergency medical technician. Cosmetologists need 1,000 hours of training and two years of practical experience for a license to do makeup, hair and nails. In contrast, the state makes EMT candidates eligible for ambulance duty after only 150 hours of training.

Most states do not grant reciprocity to other states’ licensees. This, the report observes, makes the national workforce less mobile and markets less competitive, resulting in decreased wage growth.

The report estimates that excessive licensing laws cost Michigan’s economy $8 billion in economic growth annually.

Jarrett Skorup, director of marketing and communications at the Mackinac Center for Public Policy, said, “This new study shows how costly overregulation is to Michigan’s economy – in lost jobs, which means lost income which means lost revenue for state and local governments.” Skorup has written a report focused on licensing in Michigan. “Michigan should reform its laws, which prevent those with a criminal background from employment, forces people to take unnecessary classes and pay high fees just to work.”

The author of the Pioneer study reviewed other research in the field. According to the W.E. Upjohn Institute, for example, there is scant evidence that licensing results in better service for customers. And the Mercatus Center said that 63% of studies showed there was no difference in the quality of service provided by licensed and unlicensed providers. Even worse, it said, more studies of licensing mandates found a negative effect than a positive one.

According to the Pioneer Institute report, economists say that occupational licensing laws cost the U.S. economy between 1.7 million and 2.85 million jobs.