Jun 18, 2019

Texas Reclogs the Pipes on Occupational Licensing

Trace Mitchell Research Associate, Adam Thierer Senior Research Fellow

As quickly as Texas unclogged its occupational licensing system for plumbers, it has jammed it back up again.

Last month, the Texas Legislature decided not to extend their Plumbing License Law or the board that is charged with administering plumbing licenses. We recently published an op-ed in the Houston Chronicle explaining how this was likely to increase competition and decrease prices in the plumbing industry without having a substantial effect on quality. As a voluminous body of non-partisan research has demonstrated, occupational licensing restrictions often harm both workers and consumers. A report issued by the Obama Administration found that regulations like these act as a hidden tax on consumers of between three and 16 percent.

Unfortunately, on Thursday, Texas Governor Greg Abbott issued a “disaster proclamation” under the Texas Disaster Act of 1975 delaying the abolition of both the board and the licensing law until “disaster needs subside or the 87th legislature addresses the matter.” While this decision may be justified as an emergency measure necessary to address a disaster situation, it is ultimately counterproductive and will likely make the situation far worse.

The Texas Disaster Act of 1975 gives the Governor of Texas the power to “suspend the provisions of any regulatory statute prescribing the procedures for conduct of state business or the orders or rules of a state agency if strict compliance with the provisions, orders, or rules would in any way prevent, hinder, or delay necessary action in coping with a disaster.”

Following Hurricane Harvey, Governor Abbot used this power to issue a disaster declaration and has subsequently renewed this declaration every month since. Under this declaration, he used his legislatively-granted authority to suspend the section of the Texas Occupations Code which would have abolished the Texas State Board of Plumbing Examiners and allowed the Plumbing License Law to expire.

The real disaster here is that Texans are being denied greater choices and competition. As we noted in our op-ed, the licensing of plumbers creates barriers to entry that result in less rivalry. The evidence shows that this is likely to drive up prices without increasing quality, which is typically the argument used to justify these licensing regimes.

It is more than fair to point out that policy which may be considered bad during normal circumstances could very well be necessary during disasters. However, there are reasons to think that this policy is bad particularly during times of disaster.

The Texas Sunset Advisory Commission issued a report analyzing Texas’ plumbing license and found that “Texas, much like the rest of the nation, faces a workforce shortage of plumbers, the impact of which has become most clear following the devastation caused by Hurricane Harvey in 2017. In Texas, about two-thirds of contractors report difficulty filling plumbing positions, which means fewer resources and inflating costs for consumers for plumbing services.”

It went on to note that “the effect of regulation on consumers emphasizes the need to evaluate whether prerequisites for plumbers are still needed and appropriate” and that “antiquated exams and their administration create unnecessary burdens for licensees, contributing to the workforce shortage of plumbers.”

During times of disaster, the market needs more, not fewer, individuals working to address Texas’ plumbing needs, especially when Texas is already facing a shortage of workers in this industry. By continuing to impose unnecessary occupational licensing requirements on plumbers, Governor Abbott is preventing Texas’ citizens and workers from enjoying the benefits brought by increased competition and lower barriers to entry.

While the evidence is clear when it comes to the impact of occupational licensing on prices and competition, how do we know that such licensing laws do not likely have much connection to quality of service or responses during disasters? Well, we can look to the six states that do not require plumbing licenses--Kansas, Missouri, Nebraska, New York, Pennsylvania and Wyoming--and consider their experience. There is no evidence that consumers in these states are suffering from sub-par service.

We can also look at the research that has been done on the impact that occupational licensing has on quality. Of the 19 studies that have been conducted, 12 found that occupational licensing had unclear, mixed, or neutral effects on quality, four found that occupational licensing had negative effects on quality, and only three found that it had positive effects on quality. The research shows that occupational licensing is far more likely to harm or not affect quality than it is to increase quality within a profession.

Licensing law may be well-intentioned and meant to “serve the public interest,” but that does not mean they always do so. Texas still has a chance to blaze a different trail. There is no reason to perpetually extend licensing laws that fail to serve the public interest. The state can de-license the profession and allow a market in private certifications, contracts, and reputational effects to address competition and quality of service. This would unclog the pipes and allow the benefits of exchange to flow freely.

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