• Occupational licensing makes it illegal for an aspiring worker to enter a profession before meeting minimum requirements set by law
  • North Carolina requires licensing for 186 professions, 11th most in the nation
  • Licensing creates unnecessary barriers to entry for workers, distorts labor markets, and increases costs on consumers, all without any measurable improvement to quality of services

In North Carolina, a teenager needs just 30 hours of classroom instruction and 66 supervised hours behind the wheel in order to obtain a provisional driver’s license, which enables that teenager to operate a 3,000-pound machine filled with gallons of flammable liquid at high speeds.

Conversely, one must complete 1,500 hours of classroom training in order to become a licensed cosmetologist, supposedly for safety reasons.

Indeed, North Carolina makes it illegal to work without first obtaining a license for a whopping 186 occupations, ranking 11th highest nationally and tied for most in the South Atlantic region.
Nationally, slightly more than one in five workers are required to obtain licensing from their state government just to work. That’s twice the rate of workers belonging to a union.

Requiring citizens to obtain a license from their government in order to earn a living goes against the principles of freedom, creates unnecessary barriers to entry — especially for low-income workers — and fails to offer any measurable protection for consumers.

A new report published by the John Locke Foundation, “Reforming Occupational Licensing in North Carolina,” details how our state’s occupational licensing laws hamper the labor market and offers guidance to legislators for how to break down these unfair barriers to work.

Problems with occupational licensing

The report defines occupational licensing as “a very costly and restrictive regulation that makes it illegal for an aspiring worker to enter a profession before meeting minimum entry requirements set by law.”
Such requirements typically involve having a specified level of education and training, passing exams, and (of course) paying a fee to the government.

The number of licenses varies greatly by state, with some occupations requiring licensing by most or all states and other occupations requiring licensing by just one or a few states. The share of workers nationally requiring a license has increased dramatically in the last several decades, rising from less than 5 percent in the 1950s to 21.6 percent today. In North Carolina, roughly 19 percent of workers are licensed by the state, ranking it at about the middle of the pack nationally.

Occupational licenses are justified typically by claims that the regulation protects consumers from unqualified or unscrupulous professionals and improves the quality of services. But, as the report notes, “there are many ways to regulate that do not involve making it a crime to begin working before meeting mandated entry requirements.”

The report cites layers of less intrusive “regulation,” including market competition, voluntary certification, and online independent reviews. Government licensing requirements should be reserved only as the last resort in cases where a public safety issue can be clearly proven and less-intrusive alternatives are not possible.

State licensing requirements are costly, and not just to those required to fulfill them

“Mandatory education programs, hands-on training under licensed professionals, and licensing exam requirements create hurdles for aspiring professionals,” the report says. “The additional time and cost of meeting these entry requirements reduce the number of professionals by an average of 17 to 27 percent.” This distorts the labor market and makes industries less responsive to consumer demand and changing conditions. Because of the barriers to entry, jobs requiring licensing can’t keep up when market conditions indicate a heightened need for them. “As a result,” the report states, “licensing slows the economy, and it can slow the recovery from recessions or natural disasters.”

By artificially suppressing the number of workers in certain fields, the restrictive nature of licensing tends to make those services being provided more expensive. That’s good for those already licensed, but not so much for consumers.

According to the report, “[E]stimates suggest that occupational licensing raises the prices of services by anywhere from 3 to 16 percent.”

These increases in costs, however, do not improve the quality of services delivered to customers. The report’s authors found “the vast majority of the 22 studies that have tried to estimate the effect of licensing on quality did not find an effect.”

As mentioned previously, North Carolina requires licensing for 186 occupations, 11th most of any state. Such an exhaustive list is costly. As the report informs us, “Estimates from the Institute for Justice suggest that occupational licensing costs the state more than 42,500 jobs and $112 million annually.”
The licensing requirements compel some aspiring professionals to spend more time and money to practice their chosen profession, while others opt for other, less preferred and lower-paying professions or leave the labor force completely.

Potential solutions

North Carolina legislators have several options to make reforms to the onerous licensing regime, beginning with a Right to Earn a Living Act. Under a Right to Earn a Living Act, as the report describes, “occupational licensing is the regulation of last resort.” Moreover, licensing laws “must be legitimate, demonstrably necessary, and narrowly tailored to a specific risk.”

A Right to Earn a Living Act would shift the burden onto the state to prove the restriction is “narrowly tailored to accomplish a compelling government interest.”

After passing the Right to Earn a Living Act, it should further be required that all licensing boards will have one year to ensure that their regulations comply with the act. They will be required to “perform a comprehensive review of all licensing regulations, define which public health or safety objectives the regulation serves, and explain why the regulation is necessary to achieve that goal.”

Three states (Arizona, Tennessee, and Louisiana) have already passed some version of this reform. North Carolina should be the fourth.

There are additional reforms that should accompany a Right to Earn a Living Act in order to break down barriers to entry to practicing one’s chosen profession. An independent commission that would systematically review the necessity of existing licensing boards as well as newly proposed licensing requirements would provide long overdue scrutiny and transparency.

A “licensing budget” would create goals for the commission, specifically setting targets for reducing the number of occupations to be de-licensed.

Universal recognition would allow workers licensed in another state to work in North Carolina without having to undergo our state’s specific requirements. By eliminating the need for redundant training, testing, or education requirements, universal recognition, which has been shown to improve a state’s labor market, would make North Carolina a more welcoming state for workers. Currently, 26 states, including Virginia, Georgia, and Florida, have universal recognition.

Conclusion

Occupational licensing creates unnecessary barriers to hardworking people simply wanting to earn a living in their chosen field. The government should not be putting up roadblocks, except in the narrow instances when occupational licensing is the only demonstrable way to protect the public. Freeing up the labor market would not only help workers more readily ply their trade, but it would also benefit consumers through lower prices.

If North Carolina is interested in continuing to compete as one of the best states in which to do business, rolling back occupational licensing should be a top priority.