January 27, 2013

Click here to view and here to listen to Jon Sanders discussing this Spotlight report.

RALEIGH — North Carolina’s aggressive approach to occupational licensing raises prices and protects current members of a profession more than it protects consumers. That’s a key finding in a new John Locke Foundation Spotlight report, which compares occupational licensing to outdated “medieval guilds.”

The report recommends six ways to “de-guild” North Carolina’s economy. Those recommendations include cutting the number of licensing boards and licensed job categories.

“Consumers would benefit from lower costs, more competition, a wider range of service levels, and more reliance on private review and certification processes,” said report author Jon Sanders, JLF Director of Regulatory Studies. “Aspiring members of a profession would be able to enter it easily, potentially bringing new ideas that would transform the industry or helping contribute to a larger menu of service choices for consumers.”

“Society would benefit from more human and entrepreneurial liberty, as well as from greater employment access for the poor, the less educated, and older career changers,” added Sanders, whose study of occupational licensing marks the latest installment in his series of Carolina Cronyism reports.

North Carolina features more than 50 occupational licensing boards, Sanders said. “The state licenses more occupations than most other states,” he said. “A recent report ranked North Carolina in a tie with Massachusetts at No. 15 in the nation for most licensed job categories at 154. Among neighboring states, only Tennessee licenses more. Virginia licenses half as many jobs as North Carolina, and crossing the border from North to South Carolina reduces licensed occupations by two-thirds.”

Researchers also find that North Carolina is “one of the more aggressive states” in licensing occupations that often employ the poor or less educated, Sanders said. “This state licenses 48 of 102 lower-income occupations highlighted in a recent study,” he said. “Such occupations are ideal entry points into the job market, and their importance to a state’s economy is not insignificant.”

An occupational license is a “grant of permission” from the government to an individual to enter the field of work he desires, Sanders explained. The supposed purpose is to ensure safety and quality. “Research is mixed over whether licensing actually has a positive effect on safety or quality.”

“In practice, occupational licensing tends to be motivated more to protect current members of a profession from competition and thereby make them wealthier,” Sanders added. “One study suggests licensing boosts earnings for current practitioners by 15 percent. In higher-wage licensed occupations, the wage premium can reach as high as 30 percent. Instead of being a case of the state versus the professionals, licensing actually helps the two sides work in concert against the interests of new competitors and consumers.”

Licensing has grown “tremendously,” Sanders reports. “In the 1950s, nearly one in 20 workers needed a government license, and now that number is approaching one in three.”

As recently as the 2011-12 legislative session, North Carolina lawmakers filed bills to license musical therapists, naturopaths, herbalists, personal trainers, X-ray technicians, and others. None of these bills won legislative approval.

Sanders offers a response to those who fear the potential impact on safety and quality if North Carolina scales back its licensing regime. “Private providers will offer reviews and even certification for consumers who seek that information,” he said. “Competition and market forces will expose and winnow out shoddy providers. The government will still be there to enforce safety and quality through the courts.”

The first of Sanders’ six recommendations involves reducing the number of state licensing boards and licensed job categories. “Legislators could adopt a ‘last in, first out’ rule of thumb for licensing boards,” he said. “If a practice just recently came to be viewed as needing state oversight, it is likely that need wasn’t that obvious.”

The report also recommends reforming and merging existing licensing boards, along with encouraging reciprocity with similar licensing boards in other states.

A fourth recommendation involves applying a principle of the “least-cost state.” “Where another state’s licensing standards are less burdensome on prospective workers in terms of fees, training, or ongoing license renewal, North Carolina should adopt the less burdensome standard,” Sanders said.

Fifth, all licensing boards should face sunset provisions. That would ensure these boards face a periodic review to justify their ongoing existence. Sixth, lawmakers should enact “sunrise” provisions for any future licensing board. “Creating a new licensing board should happen only after it has been demonstrated that there is a decided health, safety, or quality issue in the market that warrants licensure to solve.”

North Carolina needs to reverse its aggressive approach to occupational licensing, Sanders said. “As with toppling medieval guilds in Europe, removing occupational licensure is an essential step lawmakers can take toward restoring freedom in North Carolina.”

Jon Sanders’ Spotlight report, “Guild By Association: N.C.’s Aggressive Occupational Licensing Hurts Job Creation and Raises Consumer Costs,” is available at the JLF website. For more information, please contact Sanders at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].