A License for Protection: Why Are States Regulating More and More Occupations?

Article excerpt

ONE WOULD BE HARD-PRESSED TO think of a major labor market institution that is growing faster than occupational regulation. Unlike unions, which have declined from about one-third of the workforce 60 years ago to about 12.5 percent in 2005, the regulation of occupations has expanded dramatically. In the 1950s, about 4.5 percent of the workforce was in an occupation that required a state "license to practice." According to the 2000 Census, this form of occupational regulation has now grown to about 20 percent. In contrast, other labor market topics that typically receive much more attention from economists and the media, e.g., the federal minimum wage, have seen a decline in their effect on the workforce.

Why has occupational regulation grown? And what implications does this growth have for consumers, the regulated occupations, and the workforce?


Occupational regulation has grown because it serves the interests of those in the occupation as well as government. Members of an occupation benefit if they can increase the perception of quality and thus the demand for their services, while restricting supply simultaneously. Government officials benefit from the electoral and monetary support of the regulated as well as the support of the general public, whose members think that regulation results in quality improvement, especially when it comes to reducing substandard services.

In general, state regulation of occupations takes three forms. The least restrictive is registration, in which individuals file their names, addresses, and qualifications with a government agency before practicing the occupation. The registration process may include posting a bond or filing a fee. In contrast, certification permits any person to perform the relevant tasks, but the government or (more often) another nonprofit agency administers an examination and certifies those who have passed the level of skill and knowledge for certification. For example, travel agents and car mechanics are among the more than 65 occupations that are generally certified but not licensed. The toughest form of regulation is licensure; this form of regulation is often referred to as the right to practice. Under licensure laws, working in an occupation for compensation without first meeting state standards is illegal.

For the members of the occupation, obtaining licensing is generally the objective, because it imposes state sanctions on new entrants from within a state or for those moving in from another jurisdiction. For the administrators of the professional association, the resulting increase in responsibility and revenue from dues and continuing education usually results in an increase in pay. Moreover, most licensing provisions require continuing education classes for fees, which raise the revenue of the occupation association.

For the occupational association, obtaining licensing legislation means raising funds from members to lobby the state legislature, particularly the chairs of appropriate committees. In addition, the occupation association often solicits volunteers from its membership to work on legislative campaigns. With both financial contributions and volunteers, the occupational association has a significant ability to influence legislation, especially when opposition to regulatory legislation is absent or minimal. Politically active groups that have opposed licensing legislation from time to time include Common Cause, the AARP, and the Institute for Justice. In general, however, the opposition has not been effective in stopping licensing legislation.

The executive branch of government also has little reason to oppose occupational regulation. Within most state agencies, the fees generated from licensing an occupation are generally substantially higher than the costs of monitoring the occupation. The excess funds can be used to help balance the state budget or for small projects that the governor approves, or to curry favor with legislators or politically active constituents. …