Briefing Report: License to Kill Jobs - A Look at Occupational Regulation in California

Wednesday, March 10, 2010

Introduction

Most Californians know that practicing medicine without a license is against the law. They also know that lawyers and dentists must have the state's approval before they can practice their trades. Few Californians, however, would guess that upholsterers, guide dog trainers, mixed martial arts fighters, boxers, cabinetmakers, and fiberglass laminators, just to name a few professions, also require a government stamp of approval (i.e. a license) to practice in California.

The practice of restricting the right to enter an occupation goes back to the Middle Ages, when guilds restricted entry into many craft occupations. In the United States, the first known state regulation occurred in Virginia, in 1639, when the state legislature regulated medical practice; but it did not become widespread until the nineteenth century, a great expansion occurring after 1950. While only 70 occupations were subject to state licensing at that time, the number grew to more than 500 by the late 1970s, including about 18 percent of the U.S. workforce.1 Today, that figure has grown to over 20 percent, with over 1,000 occupations regulated at the state level and still more being regulated at the federal and municipal levels.

This briefing report intends to provide a look at occupational licensing in California as compared to other states, and discuss the toll it takes on the economy.

Why License?

Occupational licensing has always been justified to the public as a form of consumer protection, an assurance that somebody with a license will be competent and accountable for the services they provide. While proponents claim these licensing requirements are needed to protect the public from unscrupulous, incompetent, or dangerous practitioners, the main effect is simply to restrict entry and reduce competition in the licensed occupation. That’s why government licensing requirements are almost never pushed for by the general public, but by associations of the professions or vocations to be licensed.

When looking at licensing trends nationwide, it seems to some that every organized occupational group in America has tried at one time or another to acquire state licensure for its members. The reason is simple. Licensing is a way to restrict entry into a given occupation, thereby reducing competition and effectively increasing the incomes of those who have the licensed blessing of the state to offer certain services, while decreasing the prosperity of those who would otherwise be making a living in a respective occupation.

Licensing laws generally require candidates to meet four types of requirements: (1) formal schooling, (2) experience, (3) personal characteristics (such as citizenship and residence), and (4) successful completion of a licensing examination. The mechanism for enforcing these requirements and maintaining control over a licensed occupation is the state licensing board.

Establishing licensure is only part of the story, of course. The tendency in all professions is to increase constraints on entry after licensing laws have been introduced, with existing members of the occupations protecting themselves with "grandfather clauses" that permit them to bypass the new entry requirements.2

How Does California Measure Up?

According to a 2007 study by the Reason Foundation, states required licenses for an average of 92 occupations. As the table below shows, the most regulated state in the nation is California, which requires licenses for 177 job categories, nearly double the average. Next door, Arizona licenses only 72 job categories and Nevada only 95.3 It should come as no surprise that, with the exception of Idaho, the least licensed states in the table below all have higher job growth rates than California. For the period from December 2008 to December 2009, California ranked 41st in total nonagricultural job growth, while Missouri ranked 14th. North Dakota ranked 1st, and was the only state to see a positive change in job growth during this time period.4

Number of Licensed Occupations by State, Most and Least Licensed States

Rank State Licensed
Occupations
Rank State Licensed
Occupations
1. California 177 41. Colorado 69
2. Connecticut 155 42. North Dakota 69
3. Maine 134 43. Mississippi 68
4. New Hampshire 130 44. Hawaii 64
5. Arkansas 128 45. Pennsylvania 62
6. Michigan 116 46. Idaho 61
7. Rhode Island 116 47. South Carolina 60
8. New Jersey 114 48. Kansas 56
9. Wisconsin 111 49. Washington 53
10. Tennessee 110 50. Missouri 41

The table above exemplifies the amount of disparity between the states. The very fact that the number of jobs requiring government licenses varies so much from state to state illustrates that the supposed “need” for consumer protection is arbitrarily (or politically, in response to special interest pressure) determined.

Licensing Aftermath

It’s no secret that licensing regulations impose significant costs on employees, business owners, and consumers alike.

Since it is more difficult to work if one has to obtain a license, fewer people will enter a given licensed profession than would otherwise exist in an unregulated world. Less competition for licensees means less pressure to offer higher quality at lower prices to attract business. As a result, consumers are left with the choice of either paying higher prices for a licensed practitioner or seeking black-market services, which afford them little or no legal protection against incompetent or harmful practices. When faced with these options, some consumers resort to dangerous do-it-yourself methods. In areas with licensing restrictions on plumbers, for example, retail sales of plumbing equipment are higher because people resort to doing their own plumbing work. In addition, electrocution rates are higher in areas with strict electrical licensing requirements, as more consumers risk performing their own electrical work.5 Finally, licensing reduces consumer choice not only by the fact that licensing means there will be fewer practitioners in business, but also because the one-size-fits-all licensing requirements imposed by the government discourage specialization and varying levels of service.

A Look Ahead

Governments are continuously licensing more and new occupations, and they rarely, if ever, abolish these requirements. This is evident by the fact that some states have licensing laws on the books that are seemingly senseless. For example, consider the following licensing requirements: auctioneer (several states), beekeeper (Maine), chimney sweep (Vermont), elevator operator (Massachusetts), florist (Louisiana), fortune teller (Maryland), interior designer (several), lightning rod installer (Vermont), mussel dealer (Illinois), rainmaker (Arizona), reptile catcher (Michigan), sheep dealer (Iowa), turtle farmer (Louisiana), and whitewater rafting guide (Maryland).6

While these requirements may seem bizarre to some, it wouldn’t be a stretch to see attempts at regulating these professions appear in California. Take the interior design profession for example. SB 1312 (Yee, 2008) would have created, within the California Architects Board, the Registered Interior Design Committee, and made it unlawful for a person to solicit business as a registered interior designer without holding a certificate of registration from the committee. (Senate Democrats supported this bill in two committees while Senate Republicans were in opposition. However, SB 1312 eventually died on the Senate Floor without a vote being taken.) This was not the first attempt at regulating interior designers in California, and from the looks of things it won’t be the last.

In the coming year, legislators will see yet more attempts by Democrat lawmakers to interfere with the marketplace by regulating two more professions in California: personal trainers and athletic agents.

SB 1043 (Calderon, 2010) provides that a person may not hold himself or herself out as a personal trainer without having either a college degree or certification from a national independent certifying body. This attempt follows on the heels of last year’s SB 374 (Calderon), which would have established educational and training requirements for personal trainers and after January 1, 2012, would have prohibited a person from calling themselves a PT unless they meet the requirements. (That measure passed the Senate and is currently parked in the Assembly.)

SB 1098 (Corbett, 2010), among other things, prohibits a person from acting as an athletic agent without a certificate of registration issued by the Department of Industrial Relations.

When these measures are up for discussion, Members may wish to ask if athletic agents or the unregulated practice of personal training are endangering the health, safety or welfare of the public.

Come on California, Let’s Get It Together

The costs of business regulation, including occupational licensing, are enormous. Especially hard hit by the price of these regulations are small businesses, which make up 99.2% of all employers and employ 52.1% of all private employees.7

To help mitigate this impact, occupational licensing boards and laws should be continually evaluated for their relevance and perceived need. As a general rule, the Legislature should consider removing licensing regulations if: (a) few other jurisdictions (say, fewer than 40 percent) have seen the need to license the occupation, (b) too few practitioners are licensed to financially justify the existence of the licensing board, or to allow for adequate consumer access to the services provided by the profession, or (c) there is a history of little or no enforcement activity, suggesting that either the licensing board is not doing its job or there is no cause for action, and thus that the board is unnecessary. By doing so, California will be able to eliminate blatant special-interest licensing regulations and ensure that the government is only interfering with the marketplace in cases where it is absolutely necessary.

 

For more information on this report or other Business, Professions & Economic Development issues, contact Amber Alexander, Senate Republican Office of Policy at 916/651-1501.

1 Prywes, Ruth. The United States Labor Force: A Descriptive Analysis. March 2000.
2 Alexander, Amber. “That’s ‘Doctor’ To You - Degree Creep in California Healthcare Professions.” Senate Republican Caucus Briefing Report. 20 January 2010.
3 Summers, Adam. “Occupational Licensing: Ranking the States and Exploring Alternatives.” Reason Foundation. August 2007.
4 JPMorgan Chase Economic Outlook Center. Blue Chip Job Growth Update. December 2009.
5 Sidney L. Carroll and Robert J. Gaston, “Occupational Restrictions and the Quality of Service Received: Some Evidence,” Southern Economic Journal 47, 1981, pp. 959-976, cited in Young, “Occupational Licensing.”
6 Summers, Adam. “Occupational Licensing: Ranking the States and Exploring Alternatives.” Reason Foundation. August 2007.
7 U.S. Small Business Administration, Office of Advocacy. “Small Business Profile: California.” 2009.