Apr 30, 2019

Arizona Makes the Right Move on Occupational Licensing

Matthew D. Mitchell Senior Research Fellow , Anne Philpot Research Assistant

This month, Arizona became the first state to recognize out-of-state occupational licenses. It’s an important shift because licensing can be an arduous process and moving to a new state usually means starting over. Now, when workers move to Arizona, they can bring their licenses with them.

Licensing has been around for decades, but the share of the workforce that needs a license to work has quadrupled in the last 50 years. About 22.3 percent of workers in Arizona must be licensed to do their jobs.

It’s not as if Arizona has a disproportionate number of doctors and lawyers; many of these licensing laws regulate low-risk, low- to moderate-income occupations. Among these jobs, workers spend an average of $612 in fees and 765 days in training before receiving a license.

By contrast, though, Arizona lawmakers have determined that emergency medical technicians are fully trained and licensed after just 26 days and $337 in fees. Sign language interpreters and commercial door repair contractors must complete about 56 times more training.  

These mismatches show just how illogical a licensing regime can be. The requirements don’t relate to the level of difficulty of the job or the risk of harm that it poses to the public. Moreover, decades of research suggest that burdensome occupational licensing raises the prices of goods and services without improving quality or increasing consumer safety.

In our review of the literature, 63 percent of studies assessing the link between licensure and quality or safety found negligible effects. Of those that did find an effect, more found that licensure reduces safety and quality than found that it increases it.  

These barriers to employment may not offer meaningful protection for consumers, but they certainly protect existing businesses by restricting competition and keeping profits artificially high. In fact, 85 percent of Arizona’s licensing boards are dominated by members of the professions they oversee. The people responsible for being the “gatekeepers” to their occupation are industry insiders who stand to lose from more competition.

Lower-income Americans face especially high obstacles because they lack the means to meet the licensing requirements. Licensing tends to harm lower-skilled, lower-educated populations, those with criminal records, and people who tend to move frequently, like military spouses.

To read more about occupational licensing in Arizona, read Matthew Mitchell’s testimony before the Senate Commerce Committee on March 21, 2019

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Advocates for occupational licensing reform have highlighted the struggles of military spouses. Because they are more likely to be in licensed professions and because they frequently move across state lines, military spouses face employment setbacks if their licenses aren’t transferable.

Despite substantial evidence that licensure is anti-competitive and fails to achieve its stated goals, it continues to grow nationwide and reform efforts have proven difficult. Public choice economics explains why. The benefits of licensure are concentrated on a small number of highly-organized professionals while its costs are spread out over a large number of unorganized consumers and aspiring workers. Thus, whenever any reforms are considered, industry insiders can exert more political influence than can the general public. Thus, despite the public safety rationale for licensure, it is the industries themselves that show up at hearings to defend the laws, not consumer or public safety advocates.

Arizona’s path to reform suggests a way around this public choice problem.

Arizona had already implemented a policy that eased this burden on military families by recognizing the licenses that military spouses brought from other states. In its recent legislation, however, the state expanded that waiver to all out-of-state license holders, making it easier to bring expertise and entrepreneurialism across state lines.

While there are many ways to reform licensing systems, Arizona has wisely chosen to make licenses universally portable rather than forming individual interstate compacts that are subject to the sorts of public choice problems described above. No matter the approach, states should aim to level the playing field and make economic opportunity more accessible.

Photo credit: Justin Sullivan/Getty Images

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