Research shows Occupational licensing increases inequality and deters economic mobility

If there is one thing that studies agree on is that occupational licensing present a big burden to workers as well as the economy. In addition to preventing individuals from choosing into occupations that they would be most successful, occupation licensing also restricts supply, increases prices, and contributes to deadweight loss through an inefficient allocation of resources. Additionally, most of the costs associated with occupational licensing fall on low-income individuals. And studies have documented that not only does occupational licensing prevent low-income individuals from moving up the economic ladder, it also encourages poverty and increases income inequality.

Occupational licensing encourages poverty

Before Florida passed the Occupational Freedom and Opportunity Act, intended to take full effect on July 1, it was one of the most heavily licensed states in the nation. On average it took 693 days to obtain an occupational license in Florida. The end result of this law was disastrous as expected. A lot of people were kept in poverty because they could not obtain a license.

A 2019 Cato/​YouGov poll found that 45% of welfare recipients reported that the lack of an occupational license had prevented them or someone they knew from getting a job for which they were otherwise qualified.

Florida has worked to loosen its occupational licensing laws since then. Through the newly instated Occupational Freedom and Opportunity Act,

…the state of Florida will no longer require licenses for jobs like “interior designers, labor representatives, boxing announcers and timekeepers, hair braiders, hair wrappers, body wrappers, nail polishers and painters and makeup applicators”.

The new Act also “allows workers in some professions to easily transfer their out-of-state licenses to Florida and cuts down on the training required to receive or renew a license.”

Florida is on the right track, but the state’s history should still serve as a lesson to other heavily licensed states, about the evils of imposing unnecessary costs to people trying to obtain their licenses.

Occupational licensing perpetuates income inequality and deters economic mobility

A lot of studies have documented the negative effects of occupational licensing on income inequality. Because licensing tends to push unlicensed workers out of the workforce and limits supply, it enables licensed workers to charge higher prices for their labor. Indeed, Kleiner and Alan Krueger found out that “licensing is associated with about 14% higher wages“.

This may increases inequality, especially in the long run. What makes this phenomenon worse is the fact that most people pushed out of the workforce due to lack of licenses are low-income individuals who end up in less lucrative jobs or exit the job market altogether. Licensing makes it perpetually harder for them to move up the wage ladder.

According to a study done by Tingting Zhang on how occupational licensing affects the wage distribution of Canadian workers between 1998 and 2004, occupational licensing not only increased inequality across the entire wage distribution, but also had a more substantial impact on the pay of females than males.

conclusion

Occupational licensing is generally problematic for the economy. And this is especially true for an ailing economy like the one we are in now. Loosening occupational licensing laws is one of the ways the state of Minnesota can ensure economic opportunity as well as mobility to low-income individuals at a time when unemployment is high.