The case for occupational licensing reform in the next legislative session
Last Friday, I wrote about how Minnesota ranks when it comes to economic freedom. Historically, Minnesota has consistently ranked among the least free states in the United States. While burdensome taxes have been a huge contributing factor to that trend, restrictive regulation in other areas is also an issue in Minnesota. For instance, Minnesota ranked 38th among the states when it came to Labor Market Freedom, in the 2020 Economic Freedom for North America report.
Various regulations exist in the labor market. And one of those crucial laws affecting freedom in the labor market is occupational licensing. When it comes to occupational licensing, Minnesota ranks pretty highly on the burden. As I have written before
Compared to other states Minnesota is lightly regulated. However, the burden of licensure has been growing for Minnesota the recent couple of years. And additionally, Minnesota licenses certain occupations not generally licensed in other states, and licenses them onerously.
Not to say occupational licensing is the only issue affecting Minnesota’s labor market, but historically speaking the time has never been ripe to enact reform. The coronavirus pandemic has shown us just how costly licensing laws can be. Furthermore, in the current economic climate, when small businesses have been decimated by the lockdowns, repealing licensing laws is one significant way to get low-income individuals to work.
The Minnesota economy has only been able to recover 52% of the jobs it has lost due to Covid. And a new report by DEED suggests that full job recovery won’t be reached until late 2022 or early 2023. This, therefore, translates to prolonged unemployment among low-income individuals. Evidence has shown that restrictive licensing laws mostly deny low-income workers entry into productive professions.
Through licensing reform, Minnesota policymakers do not only have an opportunity to make Minnesota a freer state but also the chance to facilitate increased entrepreneurship among low-income individuals by repealing unreasonable licensing laws. Additionally, reform will help draw skilled workers from other states into our labor force if rightly enacted.
Universal occupational licensing recognition
One major law that policymakers in Minnesota should consider is enacting universal licensure. Arizona, which has been the leading state in licensing reform has seen tremendous benefits from its universal license recognition law. As I have written before,
Arizona’s universal recognition law may be less than a year old, but early data shows that it is already having a tremendous effect. Since universal recognition went into effect in Arizona in September of 2019, over 1100 individuals have applied for and been granted a license to work in fields ranging from cosmetology to engineering.
In fact, so many states have followed suit in Arizona’s footsteps to loosen the burden they place on entrepreneurs. Since 2019, about 10 states have enacted some major form of occupational licensing reform. This is a testament to the fact that policymakers in numerous states are recognizing the unnecessary harmful effects that restrictive occupational licensing brings to consumers.
Economically speaking there is no good reason that Minnesota should not follow suit in enacting universal licensing recognition. People licensed in other states do not lose their skills once they cross the border. This means that if granted an opportunity they would be able to come and contribute to growing Minnesota’s economy.
As I have written before,
Carefully analyzed, the positive impacts of occupational licensing are very little. However, the negative impacts are numerous. By restricting people into entering specific jobs, licensing reduces the supply of services. This raises prices, and at the same time, it also increases unemployment by limiting people’s choice of work. Additionally, licensing restricts people from switching careers or even moving geographically, which increases inefficiency. All of this compound and has a net negative impact on society which is evidenced by lower economic output.
Occupational licensing boards that operate under the semblance of consumer protection but have done more harm than they would care to admit. While licenses are admissible for other very high at-risk jobs like medical practice or electricians, they do little to ensure safety in other industries like cosmetology. Truth be told, competition has the necessary structures to provide consumers with higher quality affordable services without the need for this type of intervention.
It is high time therefore that the state government evaluates the impact that its burdensome laws have on workers as well as the economy, and repeal unnecessary burdensome laws that continue to oppress workers in low-risk but lucrative professions.