Colorado's Licensure Rules Reduce Employment Prospects for Those with Criminal Records

Colorado House Finance Committee

Chair Bird, Vice Chair Synder, and distinguished members of the committee:

My name is Matthew Mitchell. I am an economist at the Mercatus Center at George Mason University. For several years now, my colleagues and I have been studying occupational licensure and its effects on consumer prices, public health and safety, and the employment prospects of particular populations. As part of that project, my colleague Liya Palagashvili and I recently wrote a policy brief titled “Economic Freedom in the Period of Invisible Punishment: Occupational and Business Licensing Barriers That Restrict Access to Work for Those with Criminal Records.” I hope you find this brief helpful as you debate the merits of easing occupational licensure restrictions for those with criminal records, and I have appended it to my testimony.

The US incarceration rate is far higher than that of other Western nations, but even this rate understates the deleterious effect of the current criminal justice framework on ordinary Americans.

At 629 incarcerated persons per 100,000 residents, the United States locks up more of its citizens than any other country that faithfully reports its data (China, Eritrea, North Korea, and Somalia do not faithfully report their data). The US incarceration rate is higher than that of Rwanda (580 per 100,000), Turkmenistan (576), El Salvador (564), and Cuba (510); and it dwarfs the incarceration rates of other Western nations such as the United Kingdom (133), Canada (104), Greece (103), and Germany (71).

The US incarceration rate dramatically understates the consequences of the US approach to criminal justice. Once an American steps outside of jail, he or she enters a period of “invisible punishment” in which governments deny him or her basic civil and economic liberties. Of particular concern for those hoping to reenter the workforce is that those with prior convictions can be denied a license to work in the profession of their choosing or denied a license to start a business in the field of their choosing.

In Colorado state law, there are 247 limitations on “occupational and professional licensure and certification” and another 213 limitations on “business licensure and participation” for those with prior offenses. For example, any misdemeanor conviction is sufficient grounds for a Colorado board to indefinitely deny, suspend, or revoke a license to operate a feedlot, and a controlled substances offense is sufficient grounds for a Colorado board to indefinitely deny, suspend, or revoke a landscape architecture license. And any felony is sufficient to allow a board to indefinitely deny, suspend, or revoke a license to be an electrician.

Figure 1 shows the types of offenses for which Colorado boards may bar business or occupational licensure. It shows, for example, that there are 253 ways that a business or occupational license may be denied for any felony. Colorado imposes more restrictions for those found guilty of misdemeanors and substance abuse crimes than for those found guilty of violent or sexual offenses.

This problem is compounded by the fact that, although a small minority of Americans are currently incarcerated at any particular time, large numbers of Americans have had contact with the criminal justice system. About 66 million Americans have criminal records. Extrapolating to Colorado, this means that some 1.2 million Coloradoans have a criminal record and may potentially be denied a license to work or to start a business in the state.

These limitations on economic freedom explain, in part, the considerable evidence that the mark of a criminal record reduces employment prospects. Beyond the staggering personal costs for those with criminal records, occupational and business licensing barriers can have negative consequences for states at large because obtaining a job is one of the most important ways that formerly incarcerated individuals can get their lives back in order and avoid returning to prison.

To add insult to injury, the evidence is not at all clear that licensure protects the public. In theory, licensure might protect the public by weeding out incompetent workers, or “bad apples.” But licensure might undermine public safety by limiting competition and driving some consumers to avoid purchasing services altogether (or to perform services themselves, as has been shown with stringent licensure of electricians). In figure 2 I present a survey of the empirical work on licensure and quality. Most studies find that licensure has either mixed, unclear, or neutral effects on quality. Interestingly, however, more studies find a negative effect of licensure on quality than find a positive effect. To my knowledge, no one has yet studied whether licensure prevents fraud or theft by keeping people with criminal histories from working.

Economic theory unambiguously predicts that licensure raises prices—and indeed, that is what the data show. In a Mercatus assessment of 19 peer-reviewed studies, my colleagues and I find that licensure is associated with higher prices in all 19. Reviewing many of the same studies, Obama administration officials similarly conclude that the association between licensing and higher prices is “unequivocal.” The effects of these increased prices are not trivial. For example, state nurse practitioner licensing is estimated to increase the price of a well-child checkup by 3 to 16 percent, dental hygienist and dental assistant licensing is estimated to increase the price of a dental visit by 7 to 11 percent, and optometry licensing is estimated to increase the price of eye care by 5 to 13 percent. What’s more, none of these studies find that licensing increases quality.

Licensure also seems to have a disparate impact on certain populations. As shown in figure 3, 64 percent of the studies that assess the effect of licensure on minorities have found that it has a negative effect. The remaining studies are split evenly between finding a positive effect on minorities or a mixed, neutral, or unclear effect.

In the attached policy brief, we outline several simple reforms that states can pursue to address this problem. Colorado has already taken some of these steps (for example, the state prohibits boards from using arrest records or sealed or expunged records, and the state allows boards to deny a license on the basis of a criminal record only if the applicant’s crime is relevant to the occupation for which a license is being sought).

Colorado occupational licensing law has three main problems remaining, though:

  • It does not prevent agencies from using vague standards such as good moral character or moral turpitude in assessing an applicant’s qualifications.
  • It does not require boards to issue a predetermination letter, which alerts applicants that their prior convictions may jeopardize their license.
  • It does not permit applicants to appeal determinations.

HB 22-1098 would remedy the last two of these problems, continuing the good work that has already been done to ease some of the burdens imposed during the period of invisible punishment.

I hope that this information is helpful. Please know that I would be happy to answer any questions you might have about the research or about the experiences of other states.


Economic Freedom in the Period of Invisible Punishment: Occupational and Business Licensing Barriers That Restrict Access to Work for Those with Criminal Records” (Mercatus Policy Brief)