Some of this regulatory expansion stems from legitimate concerns for the health or safety of consumers in new fields or ones that have revealed new risks: By creating a state‐regulated monopoly for certain services, so the theory goes, its quality will improve and its workers will be more committed to the field (having invested time and money to gain required education and skills). However, as the Institute for Justice (which litigates some of the most egregious licensing regulations on behalf of Americans blocked by them) explains, licensing rules often have little connection to legitimate consumer welfare concerns, with training for low‐risk fields (e.g., cosmetology) often far exceeding high‐risk ones (e.g., nursing). Instead, “licenses are most often created in response to lobbying by those already at work in an occupation and their industry associations” because licenses enrich incumbent workers and allow them to block new entrants into the field.
Regardless of the motivation, the end result is clear: The percentage of workers today subject to licensing in the supposedly “low regulation” United States is at or above the level in many European nations (and about the same as the EU average).
The licensing that American workers need does not come easily or cheaply either, even though the jobs themselves often don’t pay well. IJ calculated in 2017 that lower‐income occupational licenses require, on average, nearly a year of education or experience, one exam, and more than $260 in fees. That might not sound like a major barrier to you and me, but it can be impenetrable to, say, a single parent living paycheck‐to‐paycheck or someone who just lost a job due to COVID-19.
These averages, moreover, mask the most onerous and absurd licensing cases—many of which have been successfully challenged by IJ and similar legal organizations: having a lemonade stand; lawn mowing; analyzing traffic lights (unlicensed engineering!); giving dietary advice; teaching with a license from another state; arranging flowers; offering home funeral services; and, of course, braiding hair.
This high and increasing level of licensure has obvious implications for employment in the regulated professions at issue: Licensing laws supposedly intended to benefit consumer health and safety often end up creating—through testing, training, and fees—onerous barriers to employment for workers who don’t actually pose a risk to consumer health and safety (the supposed basis for licensure). That’s especially a problem in the United States, given that our social safety net is designed for flexibility, not stability (like, say, Germany).
These licensing barriers, of course, apply to self‐employment too and could be hurting Americans’ attempts to change careers—out of necessity or opportunity—during the pandemic. Indeed, several of the jobs mentioned in the initial Wall Street Journal article above on COVID-19 entrepreneurialism require licenses in one or more U.S. states. And the economic literature finds—again and again—that licensing severely burdens workers and their ability to change jobs (“labor dynamism”), while providing little benefit to consumers. For example, one recent paper examined license variation among the U.S. states and found that shifting an occupation from unlicensed to licensed reduces employment in the licensed occupation by a whopping 29 percent. The authors also discovered that licensing requirements delay the entry of younger workers into the relevant occupations, far beyond the amount of time needed to meet any relevant education requirements. Another study finds that licensing has significant negative effects on occupational mobility when switching both into and out of licensed occupations, accounting for “at least 7.7 percent of the total decline in occupational mobility over the past two decades.” Another paper looked specifically at the state cosmetology boards that determine licensing criteria and found many of them to be captured by incumbent license holders and (likely for that reason) erecting higher barriers to getting a license in that state.
Licensing requirements have been found to be particularly harmful for entrepreneurs without a lot of time and money. According to a 2015 paper from the Goldwater Institute, in fact, higher rates of state licensure of low‐income occupations (barbers, manicurists, interior designers, various construction workers, taxi drivers, etc.) are strongly associated with lower rates of low‐income entrepreneurship: