Make Licensing Reform A Priority

By John Hood

RALEIGH — According to the most-recent ranking I can find, North Carolina requires state-approved licenses in more occupations (nearly 200) than most other states do. North Carolina licenses twice as many occupations as Virginia does, and three times as many as South Carolina.

You cannot be an auctioneer in our state unless you spend dozens of hours and hundreds of dollars to obtain a state permission slip. For some occupations, such as barbers and cosmetologists, the number of hours required runs into the thousands.

“What’s the big deal?” you may ask. Perhaps you think the promised health and safety benefits to consumers are worth the expense. Perhaps you think state policymakers have carefully weighed those benefits and costs.

Alas, you are mistaken. In most cases, occupational licensing comes about because current providers lobby for it. They seek to exclude competitors, so they can charge their customers more, or they seek to deliver the government-required training themselves, so they can collect the revenue.

Economists have produced reams of studies showing the inadvisability of licensing so many occupations. In most cases the policy just jacks up the price of services without conferring any measurable health or safety benefit. Sometimes licensure can actually make the public less safe, by driving some consumers to try do things themselves, such as home repairs, in order to escape high prices or long waits.

Consider this recent study published in ILR Review. It examined social workers in nursing homes. Because of a quirk in federal law, larger homes must hire licensed social workers while smaller homes have more flexibility. Not surprisingly, the researchers found that the regulation “works” in the sense that larger nursing homes higher 10% more licensed social workers. But they found “no evidence that the increase in licensure improves patient care quality, patient quality of life, or quality of social services provided.”

In another paper, researchers from Harvard, Stanford, and Boston University used an online platform for home repairs to assess how much consumers value the licensure of contractors. “Our results show that more stringent licensing regulations are associated with less competition and higher prices,” they wrote, “but not with any improvement in customer satisfaction as measured by review ratings or the propensity to use the platform again.”

The adverse consequences of overregulation are particularly painful during tough economic times. A study in the Journal of Applied Business and Economics examined the relationship between state licensure and joblessness during the Great Recession of 2007-09. It found “higher increases in unemployment during and after the recession in counties that were in states imposing high licensing burdens.”

My John Locke Foundation colleague Jon Sanders has offered many potential reforms of North Carolina’s occupational-licensing laws. For example, policymakers could turn some licensing requirements into state-sponsored but voluntary certification. If consumers truly see such a certification as a signal of safety or good service, they will tend to buy from certified providers, giving others a financial incentive to obtain the formal training necessary to get certified. No coercion required.

Another alternative to licensure is interstate reciprocity. If workers are licensed in another state and then move to North Carolina, why make them jump through all the hoops again? It’s highly unlikely that doing so will significantly improve the quality of services delivered to consumers.

That’s the key point on occupational licensing, by the way. Of course would-be providers can be incompetent, irresponsible, or dishonest. Of course government has a legitimate role in policing, deterring, and remedying fraud, which is a violation of the good-faith principles of contract and mutual advantage that sustain a free society. But it does not follow that forcing individuals to obtain government licenses to sell their services is either an effective or necessary way to address the problem. And licensing systems are frequently and flagrantly misused to exclude competitors and gouge consumers.

North Carolina has made significant gains in economic freedom over the past decade. To continue that progress, we must make occupational-licensing reform a higher priority.

John Hood is a John Locke Foundation board member and author of the new novel Mountain Folk, a historical fantasy set during the American Revolution (MountainFolkBook.com).

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