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Occupational Licensing Stands in the Way of Recovery

In the most recent Bureau of Labor Statistics data, there were a record 10.9 million open jobs and 2.2 million more unfilled positions than people looking for work. With unemployment still high, returning more Americans to work continues to be a top priority for both the economic and social recovery.  

Much of the analysis of the delayed return to work has rightly focused on workers’ fear of contracting COVID-19 and the unprecedented anti-work incentives built into federal unemployment insurance. But among the less discussed labor market frictions are inflexible occupational licensing regimes that exacerbate regional job-lock and keep sidelined workers from matching with understaffed employers.  

A Barrier to Work

Occupational licensing stands in the way of economic recovery in two important ways: by keeping people from entering new professions and by increasing the cost of moving to places that have healthier job markets.

Occupational licensing regulations require workers to obtain government permission to legally offer goods or services for pay. These requirements force animal breeders, auctioneers, dance instructors, bartenders, cosmetologists, door repair contractors, florists, interior designers, landscapers, tour guides, and upholsterers—to name a few of the more than 100 lower-income occupations that requires a license—to pay hundreds to thousands of dollars in fees and thousands of hours of education as a prerequisite to work.

These laws are often premised on a need for consumer protection, and they ostensibly provide a way of ensuring quality or safety in specialized professions such as medical services. However, most licensing requirements are overly burdensome and act primarily as state-enforced cartels that protect government-privileged industries from competition.

States also often have unique systems that make transferring certifications and credentials between jurisdictions expensive and time consuming. This increases the costs of moving to areas with more available jobs for licensed professions, including nurses, accountants, and lawyers. The Federal Reserve Bank of Minneapolis finds interstate migration rates for workers in jobs requiring an occupational license are nearly 40 percent lower than for workers with unlicensed jobs. This suggests that having an occupational license directly impedes interstate migration and job transitions. For Americans who would like to move to a state with greater job offerings, not having a transferrable license may keep them from those opportunities.

The Employment Shortage Isn’t in Every State

The job openings glut is not a universal phenomenon. Just because there are more jobs open than job seekers at the national level, does not mean that the jobs available match the skills and location of the workers across states and cities, as highlighted in recent Joint Economic Committee analysis of state-by-state job market differences. In fact, in Vermont, New Hampshire, Nebraska, South Dakota, Idaho, Utah, and Montana there are about twice as many jobs open as people looking. The exact opposite problem faces workers in New York, California, and Hawaii, where there are twice as many seekers as opportunities.

A group of American metropolitan areas, largely in the mountain west, have also experienced significant growth in recent years which was accelerated by the pandemic. These growing cities with many new jobs have significant overlap with those states showing a need for willing workers. Unfortunately for workers in licensed occupations and their families, there can be high costs to moving or reskilling for the post-pandemic jobs boom. Easing these restrictions could help ameliorate some of the current employment mismatch. 

States Make Progress

Early in the pandemic, many states took emergency action to relax rules for healthcare professionals, allowing them to deliver care across state lines and expanding scope of practice for medical students and nurses.

Some states were better prepared than others. Eighteen states and the District of Columbia already recognized out-of-state health care licenses during declared emergencies and in 2021, two new states introduced the uniform emergency legislation.

The pandemic also accelerated states’ entry into multistate licensing agreements, such as the Enhanced Nurse Licensure Compact, which allows reciprocity for licensed nurses among participating states. Since the pandemic began, three states and Guam joined the compact. Similarly, in 2020 three new states joined the Recognition of EMS Personnel Licensure Interstate Compact (REPLICA), which has been used to allow emergency medical providers to practice across states lines in response to COVID-19.

Similar compacts exist for physicians, physical therapists, and psychologists, but more work is needed to expand the number of member states and the types of universally recognized credentials. Other states are implementing universal license recognition for people who relocate to their state—although fees, background checks, and transfer paperwork are still required. Following Arizona’s first-in-the-country universal recognition legislation in 2019, seven additional states passed similar legislation in 2020 and 2021 and several more are in the process of doing so.

Some states are going further by reevaluating the premise that so many types of work need a license in the first place. Following a Utah Department of Commerce report identifying a number of licensing regulations in need of reform or elimination, the governor of Utah recently issued an executive order calling for ongoing decennial review of all licensed professions and occupations. The Utah legislature has also shown interest in reforms. One bill would place emphasis on real-world experience in place of education credentials for many state and municipal jobs and another would allow some professionals to wash and style hair without a cosmetology license. These new efforts come on the heels of a 2018 Utah reform that provides licensure reciprocity for military families, one of the first pieces of legislation of its kind.  

Utah’s reforms, and other similar efforts in Idaho, Connecticut, Illinois, Nevada, and several other states, are a good start but bolder reforms should be considered that eliminate many licenses all together and provide automatic reciprocity for licenses obtained in other states.

What Can Congress Do?

Though occupational licensing largely occurs at the state level, several federal-level reforms can also serve as a model for improving state licensure. Senator Mike Lee has proposed several reforms to increase worker flexibility.

In a more expansive proposal to increase accountability for anticompetitive businesses, the Tougher Enforcement Against Monopolies (TEAM) Act, includes requirements for state occupational licensing boards to pursue less restrictive alternatives to licensing in order to retain immunity under federal antitrust laws, among other requirements. Similarly, the Alternatives to Licensing that Lower Obstacles to Work (ALLOW) Act would reform occupational licensing in the District of Columbia and other federal property to serve as a model for states to promote less restrictive requirements, active agency supervision, and legislative oversight through regular review.  

The pandemic has highlighted new and longstanding labor market frictions that are keeping Americans from returning to work. Work brings more than a paycheck, it fosters purpose and connections with others. Licensing burdens are particularly harmful to Americans who have been dislocated by the pandemic, immigrants, military families who regularly move between states, and those with a criminal record who often are categorically ineligible for many licenses.

It’s encouraging that many state governors and legislatures recognize the unnecessary barriers that licensure often imposes on workers and continue to push for lasting reforms to occupational licensing. Americans deserve a chance to work without acquiring government permission, and the broader economic recovery is likely being handicapped by these unnecessary restrictions on work.

Adam Michel
Deputy Staff Director

Christina King
Senior Economist

 

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