[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
OCCUPATIONAL HAZARDS: HOW EXCESSIVE LICENSING HURTS SMALL BUSINESS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ECONOMIC GROWTH, TAX, AND CAPITAL ACCESS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
FEBRUARY 27, 2018
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 115-058
Available via the GPO Website: www.fdsys.gov
_________
U.S. GOVERNMENT PUBLISHING OFFICE
28-678 WASHINGTON : 2018
HOUSE COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
TRENT KELLY, Mississippi
ROD BLUM, Iowa
JAMES COMER, Kentucky
JENNIFFER GONZALEZ-COLON, Puerto Rico
BRIAN FITZPATRICK, Pennsylvania
ROGER MARSHALL, Kansas
RALPH NORMAN, South Carolina
JOHN CURTIS, Utah
NYDIA VELAZQUEZ, New York, Ranking Member
DWIGHT EVANS, Pennsylvania
STEPHANIE MURPHY, Florida
AL LAWSON, JR., Florida
YVETTE CLARK, New York
JUDY CHU, California
ALMA ADAMS, North Carolina
ADRIANO ESPAILLAT, New York
BRAD SCHNEIDER, Illinois
VACANT
Kevin Fitzpatrick, Majority Staff Director
Jan Oliver, Majority Deputy Staff Director and Chief Counsel
Adam Minehardt, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Dave Brat................................................... 1
Hon. Dwight Evans................................................ 2
WITNESSES
Mr. C. Jarrett Dieterle, Senior Fellow, R Street Institute,
Washington, DC................................................. 3
Mr. Keith Hall, President and Chief Executive Officer, National
Association for the Self-Employed, Annapolis Junction, MD...... 4
Mr. Frank Zona, Owner, Zona Salons, Norwell, MA, testifying on
behalf of the Professional Beauty Association.................. 6
Morris Kleiner, Ph.D., Professor, Humphrey School of Public
Affairs, University of Minnesota, Minneapolis, MN.............. 9
APPENDIX
Prepared Statements:
Hon. Dwight Evans, Ranking Member, Subcommittee on Economic
Growth, Tax, and Capital Access, House Committee on Small
Business................................................... 19
Mr. C. Jarrett Dieterle, Senior Fellow, R Street Institute,
Washington, DC............................................. 21
Mr. Keith Hall, President and Chief Executive Officer,
National Association for the Self-Employed, Annapolis
Junction, MD............................................... 30
Mr. Frank Zona, Owner, Zona Salons, Norwell, MA, testifying
on behalf of the Professional Beauty Association........... 33
Morris Kleiner, Ph.D., Professor, Humphrey School of Public
Affairs, University of Minnesota, Minneapolis, MN.......... 36
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
OCCUPATIONAL HAZARDS: HOW EXCESSIVE LICENSING HURTS SMALL BUSINESSES
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TUESDAY, FEBRUARY 27, 2018
House of Representatives,
Committee on Small Business,
Subcommittee on Economic Growth,
Tax, and Capital Access,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:04 a.m., in
Room 2360, Rayburn House Office Building, Hon. Dave Brat
[chairman of the Subcommittee] presiding.
Present: Representatives Brat, Chabot, Evans, and Clarke.
Chairman BRAT. Good morning. I apologize for running a few
minutes late. Then I will call this hearing to order.
Last year, the Subcommittee held a hearing examining the
small business labor market. At that hearing, we heard that job
vacancies across America at an all-time high. We also heard
that there are millions of Americans sitting on the sidelines
not looking for work and that undue regulations can cost the
American economy almost $2 trillion every year.
With this in mind, the Subcommittee is here today to
examine a particular set of regulations that may increase
prices for consumers, increase job vacancies, and hurt small
businesses: occupational licensing.
In its simplest definition, occupational licensing requires
a business or an individual to request permission from the
government to practice certain occupations. The percentage of
the workforce that requires an occupational license has
increased from less than 5 percent in the 1950s to almost 33
percent today.
Although some occupations can be dangerous and need
specialized education, research shows that the amount of
training required for a license almost never matches the risk
of an occupation.
There are also significant inconsistencies between state
requirements for licensing. For example, while an individual in
Missouri must only pay a $52 fee and does not need specialized
training to be an auctioneer, Tennessee requires a $650 fee and
756 days of specialized training for the same license.
But one of the most telling statistics about licensing is
that while there are 1,100 occupations in the United States
that are licensed in at least 1 State, only 60 require a
license in all 50 States. This inconsistency hurts workers'
mobility, and most importantly, small business.
This morning we will hear from a distinguished panel about
how the Federal Government can help provide solutions to reduce
licensing barriers on small businesses. I thank you all for
being here this morning.
And I yield to the ranking member for his opening remarks,
Dwight Evans.
Mr. EVANS. Thank you, Mr. Chairman, for holding this
hearing.
Licensing is a process by which the State requires a worker
to meet basic standards at the local, State, and Federal level
before they are able to perform a job. While the origin of
these limits had noble goals of protecting the safety and well-
being of residents, we can think of instances where the
requirements have proved burdensome and bear little resemblance
to the function they were intended.
It makes sense to license electricians, EMTs, daycare
workers. The harm done by an unskilled person working in one of
these professions is much more serious than that of a
hairdresser and travel guide. Nevertheless, occupational
licensing persists and has become ever more burdensome across
the Nation.
Since the 1950s, the number of licensed workers has jumped
from just 5 percent of the workforce to nearly 30 percent
today. That is nearly one in four workers.
Yet, not every occupation is regulated consistently across
States. Fewer than 60 occupations are regulated in all 50
States, showing a substantial difference in which occupation
States chose to regulate.
Making the situation worse for workers, many of whom are
striving to be small business owners, are the fees required,
the training costs, and time spent studying and testing.
While the requirements serve a functional purpose, they are
also a barrier for entrepreneurs to enter an occupation,
especially for low-income and immigrant workers.
Today's hearing will give us the opportunity to learn more
about the genesis of professional licensing and its evolution.
Though this issue is primarily one for the States to take up,
it is nevertheless important for us to bring it to the
forefront because it has an effect and can help guide
policymakers at the Federal level.
I yield back the balance of my time. Thank you, Mr.
Chairman.
Chairman BRAT. Thank you, Mr. Evans.
If Committee members have an opening statement prepared, I
ask they be submitted for the record.
I would like to take a moment to explain the timing lights
for you. You will each have 5 minutes to deliver your
testimony. The light will start out as green. When you have 1
minute remaining, the light will turn yellow. Finally, at the
end of your 5 minutes, it will turn red. I ask that you try to
adhere to that time limit as best you can.
And with that we will go to introductions.
Our first witness this morning is Jarrett Dieterle, senior
fellow at the R Street Institute here in Washington. He also
serves as the Institute's director of commercial freedom
policy, focusing on regulatory affairs, occupational licensing,
and other commercial freedom issues.
Thank you very much for coming to testify with us today.
And you may proceed.
STATEMENTS OF MR. C. JARRETT DIETERLE, SENIOR FELLOW, R STREET
INSTITUTE; MR. KEITH HALL, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, NATIONAL ASSOCIATION FOR THE SELF-EMPLOYED, ANNAPOLIS
JUNCTION, MD; MR. FRANK ZONA, OWNER, ZONA STUDIOS, NORWELL, MA,
TESTIFYING ON BEHALF OF THE PROFESSIONAL BEAUTY ASSOCIATION;
AND MORRIS KLEINER, PH.D., PROFESSOR, HUMPHREY SCHOOL OF PUBLIC
AFFAIRS, UNIVERSITY OF MINNESOTA, MINNEAPOLIS, MN
STATEMENT OF C. JARRETT DIETERLE
Mr. DIETERLE. Thank you, Chairman Brat, Ranking Member
Evans, and the Subcommittee, for inviting me to testify today.
As the Subcommittee may know, and was just mentioned, I direct
the R Street Institute's work on commercial freedom policy,
including our study of occupational licensing.
In many ways, occupational licensing has become one of the
major labor policy issues facing today's workforce. As
mentioned, it is currently estimated that one out of four
Americans needs a government license to work. And the average
license requires almost a year of educational training, passing
an exam, and paying over $250 in fees.
The human cost of excessive licensing is easy to overlook,
but consider the story of Sandy Meadows, a widow from
Louisiana, who began arranging flowers, the main skill she knew
after her husband's death. Louisiana stopped her by denying her
a floristry license, and according to her attorney, she
ultimately died alone and in poverty, unable to support
herself.
Licensure acts as a barrier to entry for low and middle-
income Americans seeking to enter new professions. It is these
populations that are least able to overcome the high fees and
the burdensome educational requirements that many licenses
mandate. Licensing can also hurt entrepreneurs and small
businesses trying to enter new markets, all the while
protecting incumbent business from competition.
While licensing requirements are often enacted in the name
of health and safety, they can only rarely be justified on
those grounds. The sheer variance in licensing standards shows
this. For example, in States where interior designers are
licensed, the designers are required to complete 6 years of
training, whereas the national average for emergency medical
technicians is a mere 34 days.
The empirical research available has also notably failed to
demonstrate a clear connection between more stringent licensing
and better safety outcomes.
Importantly, in fields where health and safety concerns are
legitimate, there are often less burdensome alternatives to
licensing that can still ensure safety, options like
inspections or bonding, third-party rating systems.
In recent years, there has been growing bipartisan
recognition of occupational licensing, but there has yet to be
a broad systemic repeal of licensing laws across the country.
While most licensing, as mentioned, takes place at the
subnational level, the Federal government can still play a
role. Today, I will focus on just a few options.
First, Congress has several legislative options that would
materially reform occupational licensing. One is the
Alternatives to Licensing that Lower Obstacles to Work Act, the
ALLOW Act, which was introduced by Chairman Brat and
Representative Meadows in the 114th Congress.
The ALLOW Act would utilize Congress' constitutional
authority over the District of Columbia to establish a template
for occupational licensing reform that other States could
follow.
It would also tackle the problem of military spouse
licensure by allowing military spouses who work at Federal
military installations to be exempt from State licensing
requirements.
Another option is the Restoring Board Immunity Act, which
draws upon recent Supreme Court precedent by offering States a
safe harbor from Federal antitrust law in exchange for reforms
to their licensing boards.
In addition to these bills, licensing in Federal Government
agencies and contracting should be reviewed. The Federal
Government workforce and contractors together make up over 5
percent of our country's workforce, and the Federal Government
controls the licensing requirements for those positions.
Congress could order a review, for example, of licensing
requirements across Federal agencies and contracts and identify
ones to eliminate.
And finally, the Federal Trade Commission's licensing work
could be expanded. The FTC is empowered with research and
advocacy powers under Federal law, which it has used to file
advocacy comments and establish its Economic Liberty Task
Force, which focuses on licensing.
Congress could enhance the FTC's licensing work by passing
a specific line item appropriation that directs more money to
the agency's efforts. Or it could simply direct the FTC to
spend more of its existing budget on occupational licensing
work.
Hopefully, this testimony has successfully highlighted the
issue of excessive licensure and given Congress and the
Subcommittee some options to consider.
I thank the Subcommittee for inviting me to testify here
today, and I would be happy to answer any questions today or in
the future. Thank you.
Chairman BRAT. Thank you, Mr. Dieterle.
Our next witness is Keith Hall, President and CEO of the
National Association for the Self-Employed. He is a certified
public accountant and has provided consulting and tax services
to small businesses for over 20 years.
Thank you for testifying this morning, and you may begin.
Thank you, Mr. Hall.
STATEMENT OF KEITH HALL
Mr. HALL. Thank you. Chairman Brat, Ranking Member Evans,
thanks again for the chance to be here to represent small
businesses.
More specifically, I am here to represent over 30 million
self-employed and micro-business owners, a big part of our
economy. I know I am preaching to the choir here, but over 70
percent of all new jobs, half of all the employees in this
country, 99 percent of all businesses are small businesses.
I see it as my job to help those small businesses be more
successful, and I think that is the goal of this Committee as
well. I also believe that the primary asset all those small
businesses have is their time.
Now, throughout the long debate over tax reform, we only
asked for two things: We asked that the proposals be simple and
that they be fair. And as we talk about occupational licensing,
I think those are the same two parameters to focus on, simple
and fair.
In anticipating this meeting today, we surveyed our members
and we found that 68 percent of our members say that they are
encumbered in their success because of occupational licensing.
That is a big number.
Now, we have each referred to the license to work issue by
the Institute of Justice that noted the dramatic increase in
the number of licenses that there are today, and I think that
is very important. But to me the scary part is how many
Americans out there chose not to go into a new profession or
chose not to start a new business just because of the
licensing. And that is something we can't validate by a survey.
That is really scary.
I think the concerns of our members are threefold. One, the
cost of licensing, both money and time. Two, the inconsistency
of licensing requirements from State to State and city to city.
And then three, the impact of those two on low-income and less-
advantaged members of our community. I think those are very
important.
I think the first and most important step is increasing
awareness and support, making this known. The fact that we are
here today talking about this is a great first step.
We strongly support the efforts of the FTC and what they
are working on through the Economic Liberty Task Force. They
have honed in on a number of specific occupations to promote
uniformity and reciprocity State to State. I think encouraging
that States providing uniformity in licensing, allowing the
transition of workers from State to State, is very critical. I
think that is particularly important to our veterans and their
spouses, as Mr. Dieterle kind of referred to.
I mentioned earlier that I am here representing 30 million
micro-business owners. That number is expected to be 50 million
by 2025. To put that in perspective, that is roughly one-third
of all the tax returns filed in this country will have a
Schedule C attached to it as part of the income for those
families.
One of the reasons for that growth is growth in technology.
As technology has made the world smaller, small business owners
find themselves expanding their community, not just in their
locality, but throughout the State, in many cases multiple
States, and even throughout the world. I think it is inevitable
that that trend is going to continue. Expanding that nature of
our communities shouldn't be something that is restricted by
occupational licensing.
Now, I hate pointing out issues without offering some
solutions, so I think there are three things that we should
focus on.
One, we can support and amplify the FTC's Economic Liberty
Task Force. I think that is through unique funding
opportunities. I think that is a critical first step.
Two, formally encourage trade associations and other
organizations to review their licensing based on removing the
barrier to entry.
And then third, find some way to support scholarship
programs through associations that can provide some financial
assistance for some of those entries, particularly to the more
disadvantaged Americans that we have.
Now, I am not here to ask Congress to enact a new law
eliminating licensing, because obviously licensing is still
important. We want to make sure that the professionals we rely
on provide quality services to us. But I am asking that we as a
Committee, we as association leaders use our influence to make
sure that this issue is evaluated based on what it is, which is
a barrier to economic growth.
I think a vast majority of small businesses only want two
things, and that is for it to be simple and for it to be fair.
And if we can figure out a way to do that, as always, small
business owners will take care of the rest.
And, again, I appreciate the opportunity to be here, and
thanks for holding the hearing today.
Chairman BRAT. All right. Thank you both very much.
Mr. Zona, you got the hint here. They all have three
solutions, so we are looking forward to your three solutions.
Our third witness is Frank Zona, owner of Zona Salons,
which has three locations in the Boston metro area. Mr. Zona is
the third generation of his family to run the business, which
originally started in Sicily and later moved to the United
States. He will be testifying this morning on behalf of the
Professional Beauty Association, where Mr. Zona also sits on
their government affairs board.
Thank you very much for being here today, and we look
forward to your testimony. Thank you.
STATEMENT OF FRANK ZONA
Mr. ZONA. Thank you, Chairman Brat and Ranking Member Evans
and Subcommittee members.
I am not sure if my family was actually licensed in Sicily.
I should just get that on the record right away.
I want to thank you for the opportunity to participate in
this hearing regarding excessive occupational licensing on
small business. Thanks for the work you do as a Committee. As a
small business owner, it really matters to me. I really do look
at it as a resource and appreciate it.
I also appreciate my fellow witnesses here because I am
still learning, myself, sometimes about the environment I do
business in. And I appreciate their work.
I am here, first and foremost, representing myself, a small
business owner from Massachusetts. It is a third-generation
salon business, and I employ about 75 people in those three
locations. We are stuck at 75. I have been stuck at 75 for
about 3 years, in part due to licensing, which I will explain
as I go along.
Inside the industry, I am active in it, in the Professional
Beauty Association. I appreciate those comments about the role
of associations, because I do think that is part of it. PBA is
a national nonprofit representing all segments of the industry.
So that would be salons, like myself, spas, barber shops, the
individual professional, manufacturers and distributors, and
licensed professionals.
The diversity of membership made it a little difficult for
me to even prepare my testimony today because that is a lot of
different points of view. So I think the view of a for-profit
school owner who is preparing people for their licensing exam
is different than my point of view possibly. And a manufacturer
and distributor of products that are distributing through the
professional channel have probably never sat on a licensing
board. I have. So I am going to approach this from my own point
of view.
In the past, I have testified to House Ways and Means on
tip income reporting. I have served on the Massachusetts Task
Force on the Underground Economy and the Board of Cosmetology,
and I am happy to share my experience in that. And then outside
the industry, I am a board member of Work Inc., a leader in the
field of providing work opportunities for people with
disabilities. So in all my roles I have really been focused on
how to get people in, not keep them out.
Since I am testifying for myself, I will describe my
business. It is really services. Our revenue is derived from
services in retail, 90-10 split. That is pretty typical in the
industry. Retail, of course, have been affected by e-commerce.
Less unusual in my own industry is that I employ my
workers. And I represent really only about 13 percent remaining
of my industry that employs workers. The great majority now are
classified as self-employed. I see that really as a challenge,
both on the licensing side and just the competitive side. And I
don't know what all of the implications are, but it is
significant to know that fact. It does create a different
landscape and a lot of movement in the industry, and that
movement has the implication of labor, taxes, and licensure.
In my business, we are offering what we should: health
insurance, disability, retirement, training and development. We
are even now looking at student loan assistance. But the truth
is, is that 65 cents of every dollar is currently going to cost
of labor, and I am trying to figure out how do I fit it all in.
None of this changes the fact that if I want to grow Zona,
I have got grow head count. And as members of this Committee
well know, head count is hard for all businesses in a 4 percent
unemployment environment. Now, take that 4 percent and let's
slice it up and say, of that 4 percent, who holds a license in
cosmetology and wants to work in an employment situation. So
low unemployment, worker classification, high turnover.
Here is another problem: There is only one way into my
industry, and that is through a program that is going to lead
to licensure. In Massachusetts, that is the lowest standard of
hours that there are in the country. Massachusetts and New York
are 1,000 hours. That still, for practical purposes, means the
better part of a year for someone to go to cosmetology school
and somewhere in the band of $12,000 to $22,000. So that is a
big issue.
Since our business model is upper mid-market, we still have
preparation to do, we still have training to do, because the
license provides a necessary, important, I believe, level of
standards, but we are not done there.
And our entry-level duties is really a focus of mine when
it comes to getting people in, because there is a fair amount
of attrition from the industry. There might be someone who goes
to beauty school, and then once they are in the actual job,
they develop a skin condition and they are out of the business
in a short order of time because they were never really exposed
to that in the training. But they still have the $20,000
student loan, right?
So how do you get people in at the front end to try an
industry so that you have less problems with student loans,
with a variety of things. So those duties, shampooing hair,
blow drying hair, could give people a chance to enter partially
before committing that kind of resources.
I can't fill these entry-level jobs right now. There is no
licensing mechanism to do that. Someone has to do the whole
deal to try to find out if they want to try it.
As you know, for-profit education is being scrutinized,
further regulated, on both the Federal and State levels.
Putting the politics of for-profit aside, there are 30 percent
fewer schools today than there were just a few years ago. In my
own State, there are 10 fewer. So not only is school difficult,
there are fewer of them, so there just aren't the graduates. I
personally attempted to purchase a school. And when I looked at
the environment, I was like, no thanks, I will stick with
cutting hair.
But it leaves us salon employers almost entirely
independent. So what do we do about it? I am not prepared to
say licensing should go away. I need the foundation. I need the
commitment. But I do think employers, like myself, should be
designed in, particularly at the entry level, creating reforms
where appropriate.
I believe we do need boards with industry participants with
the right controls. I do not think the Federal Government
should be completely dictating to a State, but there is
legitimacy to the conversation and to the Federal Government's
economic freedom and competitiveness concerns.
I do think we need to move past just the public safety
argument to recognize that licensing also impacts public
welfare. The beauty industry is a people business. And the
labor intensiveness triggers not only safety concerns, but also
public interest concerns.
I think licensing does present a barrier, but there are a
lot of barriers, and it is not necessarily an absolute barrier.
If it was unregulated, I am not sure how I feel about it,
because in an unregulated environment I think entry into an
occupation is not barrier-free. Movement is not barrier-free,
workplace barriers, informational barriers, cultural barriers,
discriminatory barriers.
I would be happy to talk about the nail salon issue in New
York where it was licensing that helped find some exploitation
there.
But I definitely believe that occupational licensing can
and should be looked at for some opportunities of reform and
can be a tool to get people in, not keep them out.
Thank you very much.
Chairman BRAT. Great. Thank you, Mr. Zona.
I now yield to our ranking member for the introduction of
the next witness.
Mr. EVANS. Thank you, Mr. Chairman.
Good morning. It is my pleasure to introduce Dr. Kleiner, a
professor at the Humphrey School of Public Affairs and the
Center for Human Resources and Labor Studies, both at the
University of Minnesota Twin Cities. He is also a research
associate in labor studies with the National Bureau of Economic
Research and serves as a visiting scholar in the Economic
Research Department of the Federal Reserve of Minneapolis.
He has published extensively in the top academic
publications on the topic, including three books on occupation
regulation. Mr. Kleiner has also testified internationally and
domestically on occupation regulations and provided guidance to
a variety of agencies, including the FTC, the Treasury, DOJ, to
name just a few. He received his doctorate in economics from
the University of Illinois.
STATEMENT OF MORRIS KLEINER
Mr. KLEINER. Thank you, Chair Brat and Ranking Member Evans
and the other members of the Subcommittee.
Let me start with my conclusions, and as echoed in an
article that appeared last week in The Economist magazine,
because it establishes that wage and other benefits of
occupational licensing are concentrated primarily among the
individuals who are already well paid.
Evidence indicates that occupational licensing can hamper
mobility, making it harder for workers to take advantage of job
opportunities in other regions. There is relatively little
evidence to show that occupational licensing has actually
improved the quality of delivered services in many fields,
although it has been shown to increase prices and limit
economic output.
Government should require cost-benefit analysis prior to
new licensing rules, allow practitioners to cross borders
without economic penalties, and reduce regulations in certain
occupations.
First, occupational licensing makes it more difficult to
enter an occupation and move across political jurisdictions.
While licensing may be an effective means of boosting wages for
some occupations, licensed workers are not always better off.
Empirical evidence indicates that licensing can hamper
mobility, making it harder for workers to secure jobs in other
States.
Occupational licensing can thus serve as a deterrent to
geographic movement in several ways. For instance, licensing is
typically administered at the State level and workers may have
to repeat many of the requirements and investments necessary to
gain licensure when moving across State borders.
In some partially licensed occupations, for example, in
interior design, if you are moving from an unlicensed State to
a licensing State, you must go through the full set of
requirements in order to get a license.
Another issue is that relicensing requirements can be
prohibitive in terms of both time and money, thereby
discouraging workers from moving to other licensing
jurisdictions where greater opportunities often exist.
Beyond its detrimental effect on workers, this lack of
mobility can harm consumers, especially in rapidly growing
areas. To the extent that licensing slows the influx of new
workers and inhibits greater competition, consumers are unable
to access services at the lowest cost. Small businesses are not
as likely to hire workers at existing wages, creating what they
perceive as shortages.
Second, licensing can affect consumer prices via several
channels, from restrictions on worker mobility to limits on
advertising and commercial practices. The impact of licensing
on wages ranges somewhere between 5 to 33 percent, depending on
the type of occupational practice and location.
Third, occupational licensing reduces the ability of
individuals to enter regulated occupations. For example,
occupational licensing can reduce labor supply by between 17 to
27 percent. Men respond to occupational licensing with larger
restrictions in labor supply than women.
Longitudinal data show that the longer an occupation is
licensed, the greater the ability to limit entry and raise
wages for its workers.
In addition, immigrants have lower levels of licensing than
natives, suggesting that it serves as a barrier for this
growing group in the U.S. economy.
Overall, licensing and the lack of consistency across State
borders with respect to education and training of licensed
practitioners can carry broad implications for the economic
well-being of individuals.
Evidence indicates that licensing influences the allocation
of labor in critical areas of the economy, such as healthcare,
construction, and education, and it has an important influence
on employment, wage determination, employee benefits and
prices.
Some even suggest that licensing dampens the rate of
innovation and misallocates resources within an occupation by
setting fixed, and in some cases, arbitrary rules.
In terms of suggestions, first, State licensing should
require that the Federal Government should encourage cost-
benefit analysis prior to the approval of new licensing
standards. Second, licensed individuals should be allowed to
move across political jurisdictions with minimal retraining or
residency requirements. And third, where feasible, government
should reclassify certain licensed occupations through a system
of certification or remove regulations on some professions
entirely.
These proposals should lead to employment growth in
affected occupation and a reduction in consumer prices.
Replacing licensing with certification in certain occupations,
thereby providing more competition, would in most cases result
in substantial gains in economic growth and employment without
measurable harm to consumers.
Chairman BRAT. Great. Thank you, Dr. Kleiner. I went to
high school in Minnesota, and I am an econ professor for 20
years out here.
I will yield myself 5 minutes for a few questions.
You got right to it in your comments. And you are all way
too polite. I want you to kind of get into what is really going
wrong here, too.
So in Virginia we had a guy named Jim Buchanan who won a
Nobel Prize in economics for regulatory capture and all this
kind of thing. And you mentioned, I want to hear, I am going to
ask you about the black market if you overregulate.
But what I am interested in, any metrics. You kind of
started off with an interesting thing, that some of the higher-
priced industries that have been around have more regulation
and certification.
And so, I mean, are there any other metrics like that, just
real quick, off the top of your head, that you can think of?
How do you identify? Mr. Zona said he has huge variety even
within his industry on certification. Some it is good. Some it
is bad.
The American people, if you knock doors, politics, door-to-
door, and ask people, ``Do you want more or less regulation?''
I am stunned. They still say more. If you go to a small
business, they say the opposite. Everybody kind of wants
safety, but they don't get there is $2 trillion in downside
from regulation on the economy.
And so are there any quick metrics, just because we are
limited for time, that come to mind? How do you identify the
people who are gaming the system versus whether there is a
legitimate social need for some minimal certification?
Dr. Kleiner, I want to start with you here.
Mr. KLEINER. Well, thank you, Chair Brat and Ranking Member
Evans.
Certainly there have been estimates. There was a white
paper put out by the previous administration which identified
many of the costs, both in terms of over $200 billion in lost
output and, in addition, a reallocation of resources from
relatively well-off licensed practitioners from consumers.
So the thought experiment would be a relatively lower-wage
waiter or waitress having to pay more for dental services. So
there is the reallocation, it is a reverse Robin Hood effect in
terms of reallocation of resources from poor consumers to
relatively well-off licensed practitioners.
Chairman BRAT. Mr. Zona.
Mr. ZONA. I mean, there is such a variety of licensed
occupations. So I look at mine with pride, but really
recognizing that it is at the lower end of occupations relative
to other licensed ones.
And so I don't know. I don't know on that upper end. I just
know that in mine the issue of worker classification, the
challenge that I face at being increasingly fewer of me that
are actually employing their people, I don't know how to
extrapolate the economics of that. But it is the biggest
challenge that I face.
Chairman BRAT. Yeah. And in your industry, because
sometimes up here in D.C. you have the big businesses, there is
big everything, big airlines, big banks, big insurance, big
everything. So there you go, okay, are they regulating to keep
out the small guy?
One thing I haven't heard anyone comment on: As
bureaucracies form, you get fees. You are the director of an
association that is going to certify, so your new interest now
is to do certification. I mean, so is it big business putting
pressure on certificates or is some of this just the nature of
bureaucracy--``Hey, once you start certifying, let's do more,
we need to add more safety stuff, we need to add more of
this.''
And the harm comes when Mr. Dieterle mentions this poor
woman that has no subsistence. She has no job. And so you
always add to regulation-- ``Oh, this is good, the shop should
have this, this, and this.''
We have kind of a daycare crisis in this country. I looked
into that. We have churches that are willing to do it, seniors
that are willing to watch kids, and they can't do it because of
the regulation of the building.
You have a free daycare solution built into the economy
sitting there, but you can't do it. And the harm comes to the
moms and dads who need some daycare and whatever. No one ever
sees the harm. That is always the hidden part that is brushed
aside.
And so have you ever seen, any of you seen just this kind
of inherent nature built into bureaucracies themselves, that
once you start certifying, they take pride in their industry,
but there is a downside?
Mr. ZONA. I will comment once more quickly and let others.
It is interesting, because I don't think our industry on
the trade association side has really made a significant effort
to certify. It happens from manufacturers. But it is a very
fragmented industry, and maybe many of the ones that are
licensed are. And it has been licensed since, I want to say,
the 1920s.
So it has been convenient, I suppose the word would be, for
the industry to say that is for the State boards to do, right?
And so I think this conversation and the pressure, if you will,
from Congress and the States, all of this has been healthy. It
gets us paying attention and maybe doing more as an industry
than we have in the past.
Chairman BRAT. Good.
And I am over my time. I am going to come back to it when
we go around. But right now I would like to yield to the
ranking member, Mr. Evans, for his questions.
Mr. EVANS. Thank you, Mr. Chairman.
Mr. Hall, in many instances professional associations
request a State legislature to enact licensing regulations. How
do we balance the need to ensure quality service while also
ensuring competitiveness in the market?
Mr. HALL. I think that is a great question. And I think
that is exactly why we are here. That is the hard part.
Because, clearly, licensing, making sure professionals provide
adequate services, even above-adequate services, I think that
is very important. But when that licensing becomes a barrier to
starting your own business or a barrier to a new job, I think
that is when we have a problem.
So I think the first thing to do, how we can implement
that, again, is what we are doing today, increase awareness.
And I think the FTC's efforts through their task force, I think
that is a good first step to raising awareness. This hearing as
well.
I think a critical factor is finding some way to have
States come together so that there is some ability for
reciprocity. I think each of us has talked about being able to
move and provide services in other States.
Mr. EVANS. While you are at that point, going to my next
point, then, how do we encourage States and local governments
to standardize where appropriate without trampling their
autonomy?
Mr. HALL. Great question.
Mr. EVANS. I know the chairman doesn't want the idea of
micromanaging Richmond. So the fact of the matter is, how do we
strike that balance without--States.
Mr. HALL. I think we are in our 241st consecutive year of
arguing over Federal Government versus State government, and we
probably will continue to do that.
And I think at the end of the day, and I certainly yield to
you guys, this is your expertise, not mine, but using our
influence in this Committee, in the Federal Government, back in
our constituencies to let them recognize this is a problem for
their industries as well.
We kind of have that human nature thing of we want to
control what we have, we want to control our association, our
industry, and it is kind of scary to open it up to others, when
the actual fact is, the more we open it up, the more everything
grows. And I think that communication, that awareness is the
number one thing, I believe, we can do today to make a
difference at the State level.
Mr. EVANS. Dr. Kleiner, your reaction to what I just asked
in terms of questions from your perspective of that balance of
autonomy?
Mr. KLEINER. Ranking Member Evans, I think that these
issues are a continuing issue of tension. And certainly one
potential solution might be the Restoring Board Immunity Act,
which is a tradeoff of allowing board members to be immune from
antitrust litigation.
For the States examining very closely the three issues that
I mentioned, in terms of doing cost-benefit on new occupations
becoming regulated. Questions of migration. And then looking at
issues of reducing regulation and examining do all these 800-
plus occupations that are licensed in at least one State, do
they all need to be licensed?
And certain States, such as Michigan, have chosen to
deregulate and move from licensing to certification of many
occupations. Colorado has done that. And several governors have
taken the lead and have vetoed new occupations that are seeking
to become--moving from either certification or no regulation to
becoming licensed.
Mr. EVANS. What was the incentive for those States to take
that kind of action?
Mr. KLEINER. I think part of it was the governors looking
at issues that this Committee is looking at and saying, Do
these occupations need to be regulated? What have been the
effects on small businesses of what they would perceive or many
small businesses would perceive to be labor shortages in
certain areas?
Businesses coming to the legislature and saying, Well, do
we really need to have people do what might be considered scope
of practice? That is, there are certain jobs that, for example,
a plumber or electrician has to oversee the work of someone who
is actually doing the work. So there are scope of practice
issues which are also a question and are they creating
inefficiencies in the economy.
So all these are issues that have been brought to the
States and have led both the legislature, in some cases, and
the governors to move in many cases to reduce regulation.
Mr. EVANS. Mr. Chairman, why I asked that question, I was a
legislator for 36 years, so a little special place in my heart
at the State level. So I yield back the balance of my time.
Chairman BRAT. Thank you very much.
And at this time I would like to yield 5 minutes to Ms.
Clarke from New York.
Ms. CLARKE. Thank you, Mr. Chairman, and thank you to our
ranking member. I also want to thank our panelists for sharing
your insights this morning.
Professional licensing has existed for almost as long as
industry itself. This vital service ensures that consumers are
protected from hucksters and receive nothing but the best
quality service from qualified professionals in everything from
their door repairmen to their hair stylists and barbers.
However, as has been stated in the testimony of our expert
panelists here this morning, burdensome licensing procedures
can also price entrepreneurs out of the market and prevent
consumers from having access to the best number of
professionals in their area. When this happens, everyone loses.
As just one example, a vegetation pesticide applicator in
New York State must pay $3,000 and undergo 66 hours of training
in order to be licensed, while the same licensed professional
in Nevada must pay $450 and undergo 16 credit hours of
training. It is tough to tell from these facts alone whether
$3,000 is too much or $450 is too low.
However, the fact remains that this is a huge disparity
that is not fully accounted for by the vegetation alone. We
must therefore do what we can to ensure that licensing
standards are fair and uniform without harming consumers or
professionals.
So, Dr. Kleiner, occupational licensing is primarily a
State function. What role, if any, does the Federal Government
have in reforming and/or creating a standard for these laws?
Mr. KLEINER. Thank you for your question.
Certainly the States can provide moral suasion, or the
Federal Government can provide moral suasion to the States in
terms of implementing and moving toward reducing burdensome
licensing. And also, under the Federal Trade Commission, there
can be tradeoffs that can be granted in terms of reducing
regulations on members of the board.
For example, right now, many State board members are
concerned or perhaps won't even serve on State boards because
they are fearful of being sued under a recent Supreme Court
case involving North Carolina Dental v. the Federal Trade
Commission, which the Federal Trade Commission won that
particular case, and board members are concerned about their
service on boards.
So the tradeoff might be immunity from lawsuits and
reducing burdensome regulations that affect both small
businesses and consumers.
Ms. CLARKE. And, Mr. Hall, how can we make it less
expensive for entrepreneurs to become licensed?
Mr. HALL. That is a great question. I think technology over
time can help us with that process. I think education,
training, online access to those materials can help with the
overall cost.
For those industries that require travel to a local school,
if those can then be expanded to online applications, I think
that is another way to reduce the cost.
I think the more scary thing again for me is, just like
your specific example, when you live in one State and you may
have a barrier to entry of what you choose to spend your life
doing of $3,000 and 10 weeks of training, you move across the
State line and now it the only costs you $456. That seems to be
a disparity that doesn't make sense.
So I certainly believe decreasing the cost is one of the
priorities we should manage, especially for those lower-income
people who are looking for a way to take care of themselves and
their families. I think that is very important. But at the same
time finding some way to communicate amongst the States,
getting them to communicate amongst one another to find some
uniformity and reciprocity that can make the whole process
easier.
Ms. CLARKE. Thank you.
Mr. Dieterle, in your testimony you spoke of opportunity
hoarding. How can we best create a system of licensing that
benefits all?
Mr. DIETERLE. That is a great question.
I think it was previously mentioned there are several
Federal tools, such as the Restoring Board Immunity Act, that
would potentially position the Federal Government to really
kind of investigate and incentivize State boards, that are
mostly comprised of self-interested economic actors, to kind of
clean up and reexamine how they operate. And I think that that
would go a long way towards getting rid of some of the low-
hanging fruit of situations where there is kind of just blatant
opportunity hoarding going on.
I think, in addition to the enforcement efforts that the
FTC has, they also have an advocacy role, as I mentioned in my
testimony. And a lot of times when licensing laws are proposed
at the State level, a lot of State legislatures act as part-
time institutions, composed sometimes of amateur legislators,
and a lot of times the only voice in the room in those
situations is the industry and the people that want licensing.
And the FTC can, for example, file advocacy comments
sometimes at the State level and kind of bring more of a
competition, market-oriented analysis to it, suggest maybe
alternatives to licensing that are not as burdensome but still
protect health and safety.
So I think that kind of using that advocacy power and
enforcement power of the FTC, in particular, would be a way to
address some of the situations where there is just kind of
blatant opportunity hoarding going on.
Ms. CLARKE. Very well.
I thank you, Mr. Chairman. I yield back.
Chairman BRAT. Very good.
I just wanted to ask a couple more questions, and then if
the ranking member has a couple or if anyone else wants to
continue.
But Dr. Kleiner suggested doing cost-benefit analysis on
small businesses and certifications, whatever. For smaller
firms, I love the idea intuitively, but economists, we can make
the numbers scream and go our way, and we can torture the data
until it says what we like it to say.
And so our Catholic brothers and sisters have this thing
called the preferential option for the poor. And what that
means to me in this context--or could mean. I mean, I would
like to hear it. For me, the preference or the option should
always go to the poor, right? Before you certify and exclude
people from a lifetime calling or profession, you better have a
real good reason to inhibit someone's liberties.
So someone has their talents, it is their passion maybe.
They want to go into a livelihood. And then some certification
is going to say, ``You can't do that with your life.'' Wow. So
that is kind of interesting.
So my own bias is clearly on behalf of the poor and the
creativity and the startup there. And so I will just ask you,
Mr. Dieterle, if you can give an example or two of where the
poor are getting crushed in terms of opportunity.
And then if the others want to think of: All right, Brat,
you are exaggerating too much, there are some clear cases where
you have got to have certification, because if you don't, this
is what is going to go wrong. So if someone wants to think of
the counter-example.
But give us a couple examples that you have run across
where someone at the lower end of the income distribution, just
getting started, has just had their life stifled by these regs.
Mr. DIETERLE. Yeah. I think it is the same thing you are
saying, just maybe different words for it, a presumption of
liberty, I think. That the presumption is that if it is safe,
that you should be able to practice in a certain profession.
And there are a lot of cases where there isn't that
presumption. The presumption runs the opposite way. The
presumption runs that it is totally legitimate to have this
license. And, of course, there are safety concerns, quality
concerns, even if that hasn't been proven. And that actually
really bites people at the local level.
I mean, anecdotally, if you want stories, there are stories
of a lot of immigrant communities that practice African natural
hair braiding, for example. They have come to the United
States, they want to be able to continue practicing that
tradition of theirs and a skill that they know. And several
States, Missouri and others, have stopped them from doing that.
They have had to shut their businesses.
There was a gentleman in Tennessee----
Chairman BRAT. Let's just go through these one-by-one.
So on the hair braiding, does anyone have a compelling
reason on the safety side or the reg side why that person
shouldn't be allowed to do that without a certificate? I mean,
is there some compelling--I mean, it is just interesting.
Keep going. Sorry to interrupt you.
Mr. DIETERLE. And there may be arguments for it. I mean, a
lot of the issue with that, to be fair, is that, again, it is
kind of a scope of licensure issue. They are required to go to
cosmetology school and a lot of those schools don't even teach
natural hair braiding. So maybe you could make an argument that
there is some quality, safety concern there, but it is not
narrowly targeted to actually address that issue.
Another example is a gentleman in Tennessee. Actually,
Tennessee just passed a law. It is not an old law. It is 2015.
And they said that anyone that is a barber in the State had to
have a high school education and this gentleman didn't.
I don't know about anyone else in this room, my high school
did not teach barbering. That was not a class that was taught.
And so it is really, again, totally unclear. Maybe, again, yes,
there are health and safety concerns there. Maybe you could
look at inspections, maybe you could look at bonding, other
alternatives to licensing. Maybe licensing is appropriate.
But it certainly seems like the burden of requiring a high
school degree in that situation, or like D.C. did with
childcare, requiring college degrees now for childcare workers
in the District, seems just totally out of proportion to that.
And that is actually affecting those people that, again,
are usually low-income populations, from actually being able to
have that presumption of liberty and that presumption that they
can work in a field and better their lives.
Chairman BRAT. Right. And so then a counter case where the
certification, there is a clear need.
Dr. Kleiner, if you want to make a comment.
Mr. KLEINER. Mine was really in terms of what I call scope
of practice. So veterinarians--and this is a case that was from
the Institute for Justice--precluded individuals who were horse
tooth filers from filing the teeth of horses. They said that
only a licensed veterinarian could provide those services.
Veterinarians are relatively better paid than individuals
who do this manually, yet the individuals who did this manually
were not allowed because of scope of practice issues and the
ability of the veterinary.
Individuals who were on the veterinary board, who were
almost all veterinarians, voted and precluded and got in the
rules and regulations that only veterinarians could deal with
the front end of a horse. Anyone can deal with the back end.
Chairman BRAT. That is a good one.
Ranking Member, do you have any closing comments?
Mr. EVANS. One last question, Frank, if I could. Frank, in
your testimony you stated there are other public interest
concerns that are presented in licensing outside of the public
safety argument. How can we address these barriers, if not
through licensing?
Mr. ZONA. So trade associations are obviously part of that.
It is communication, right, when the chairman said, What is the
opposite argument?
Coming from the industry, I mean, I totally agree. I don't
think the industry was even prepared, as many aren't, when some
of these commonsense problems come about, like hair braiding,
shampooing, et cetera.
So we have got to figure that out, and I think it is
getting figured out.
On the other hand, the thing I worry about is information
to people, because in my occupation, for an example, licensing
really represents the one point that you certainly have with
everyone.
So there was a New York Times expose, if you will, on the
exploitation of workers in nail salons that was discovered and
dealt with to a degree because of licensing.
I am an association person. I am a joiner. I am someone who
likes to be involved. But the truth of the matter is most
people are just trying to get through the day if they are
working and they are in business. I mean, today's payroll, I
have my sister doing it and I can be here.
But most people just aren't going to be joiners. I know
there are a lot of members. But you get my point, is that I do
think that the point of contact is something to really
consider.
So I don't know if I have answered your question, but I
think the industry or profession has to play a bigger role, but
I also think that we have to be careful about losing a point of
contact to communicate with people.
Mr. EVANS. I yield back the balance. Thank you, Mr.
Chairman.
Chairman BRAT. Great.
Well, I would just like to thank you all very much for
coming in, and thank you very much for your testimony.
I think the panel worked very well together. I think it was
worthwhile. As Mr. Hall said, part of it is just getting the
conversation going.
You all had great recommendations on steps to put forward.
You all put forward very credible evidence in your testimony.
And our staffs are going to take that into account and then
move forward and make some progress on this.
Thank you very much for being here today.
And with that, we will adjourn.
I better run through the formalities, too. I also ask
unanimous consent that members have 5 legislative days to
submit statements and supporting materials for the record.
Without objection, so ordered.
This hearing is now adjourned. Thank you all.
[Whereupon, at 10:59 a.m., the Subcommittee was adjourned.]
A P P E N D I X
STATEMENT
Congressman Dwight Evans, Ranking Member
Subcommittee on Economic Growth, Tax and Capital Access
House Committee on Small Business
``Occupational Hazards: How Excessive Licensing Hurts Small Business''
Tuesday, February 27, 2018
Thank you Mr. Chairman for holding this hearing. Licensing
is a process by which the state requires a worker to meet basic
standards at the local, state, and federal levels before they
are able to perform a job. While the origin of these limits had
noble goals of protecting the safety and well-being of
residents, we can think of instances where the requirements
have proven burdensome and bear little resemblance to the
function they were intended.
It makes sense to license electricians, EMTs, daycare
workers, and anesthesiologists. The harm done by an unskilled
person working in one of those professions is much more serious
than that of a hairdresser, travel guide, or florist.
Nevertheless, occupational licensing persists and has become
ever more burdensome across the nation.
Since the 1950s, the number of licensed workers has jumped
from just 5 percent of the workforce to nearly 30 percent
today--that's nearly 1 in 4 workers. Yet, not every occupation
is regulated consistently across States. Fewer than 60
occupations are regulated in all 50 States, showing substantial
differences in which occupations States choose to regulate.
Making the situation worse for workers, many of whom are
striving to be small business owners, are the fees required,
training costs, and time spent studying and testing. While the
requirements serve a functional purpose, they are also a
barrier for entrepreneurs to enter an occupation--especially
low-income and immigrant workers.
Today's hearing will give us the opportunity to learn more
about the genesis of professional licensing and its evolution.
Though this issue is primarily one for the states to take up,
it is nevertheless important for us to bring it to the
forefront because it has an effect and can help guide
policymaking at the federal level. Licensing requirements have
exploded to new fields, some that merit regulation and others
that raise the question of whether there is too much licensing.
States have broad powers to regulate their workers and have
a duty to protect their residents. Requirements for training,
fees, and examinations can keep qualified individuals from
starting a business or entering a new profession. Most
importantly, licensing restricts the entry of many immigrants,
minorities, and low-income entrepreneurs. For example, mandates
for college degrees, English proficiency, and residency
requirements have been found to exclude these workers from
obtaining licenses in many professions.
And a lack of uniformity among the states in their
licensing rules impact many entrepreneurs attempting to move to
another market where they see an opportunity for business
growth. This is especially prevalent for military families who
often move from one jurisdiction to another. States should not
be hindering growth in these viable markets for business
expansion or creation--they should be fostering these self-
starters.
As more Americans begin to take risks and start their own
businesses, it is vital to bring licensing requirements to
their attention. Balancing the need for market competition with
the need for consumer protections will give small firms the
certainty they require, ensuring their success.
I thank all the witnesses for being here today and I look
forward to your comments.
Thank you and I yield back.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
However, what concerns me regarding those job duties that
require licensing are three-fold:
1) the licensing barriers of money and time
2) the inconsistency of licensing requirements from
state to state and locality to locality
3) the impact on minorities and other vulnerable
populations.
In an NASE snapshot survey for our members conducted last
week, 70% indicated that they must adhere to some level of
licensing tied to their profession. This is trend of requiring
licensing is supported by the excellent 2017 2nd edition
``License to Work'' report by the Institute for Justice, which
found, ``in the 1950s, about one in 20 American workers needed
an occupational license before they could work in the
occupation of their choice. Today, that figure stands at about
one in four.''
The NASE has been pleased to see the issue of licensing
being tackled by the highest levels of our federal government,
we continue to be incredibly supportive of the Economic Liberty
Task Force established by the acting Federal Trade Commissioner
chairman, Maureen Ohlhausen, which has been convening
stakeholders together to identifying ways in which the federal
government can safely advocate for decreased licensing
requirements while supporting state initiatives that do the
same.
As it relates to the financial burden, of the 102-
occupational license reviewed and included in the 2017
Institute for Justice report, they found that on average it
cost an individual $267 in fees and one exam, and nearly a year
of education and experience. For an individual looking to enter
the workforce or make a career shift, the financial costs of
securing the appropriate licensing requirements is a
significant barrier. It should be noted that both the Institute
of Justice report and the Economic Liberty Task Force, both
express concern as to the impact of the financial barrier on
the most economically disadvantaged citizens, causing a barrier
to entry and mid-level jobs that could have a substantial
impact on the lives of those individuals if it wasn't for the
cost associated with moving into that profession.
As it relates to the inconsistency of licensing
requirements from state to state and locality to locality. This
is the most challenging for our dynamic population of
entrepreneurs that are more mobile and creative in the way in
which they work. The figures and states are just overwhelming
to an entrepreneur looking to move his or her business from one
state to another. Especially, if that individual is looking to
relocate say to the popular Golden State, California, which
requires the largest number of occupational licenses and
imposes steep requirements to attain proper licensing.
While the FTC has honed in on 23 occupations, ranging from
dentists, electricians, and sellers of contact lens, that could
benefit from standardization, it really is going to require
states to understand the importance of creating an environment
in which entrepreneurs can easily traverse geographic areas
without fear of running afoul of complex licensing requirements
that are vary widely from state to state.
As I stated at the beginning of my testimony, some
licensing requirements are necessary, but what has become
evident in our own research is that for many of our members,
nearly 68% in our snapshot poll, said that they find the
licensing requirements hinder their ability to operate their
small business. What we don't know in our research but could
speculate is that for many Americans, they do not pursue a
profession or job because of the barrier that the licensing
requirements pose.
As always, the NASE, likes to not just identify problems
but rather, put forth creative solutions to those problems we
identify! I would propose several ideas that I know are
advocated for by many other organizations, including:
1) Support and amplify the FTC's Economic Liberty
Task Force;
2) Work to encourage Associations and organizations
to review their own licensing requirements, which will
turn, encourage state and local governments to review
their licensing requirements
3) Support scholarship and other avenues in which
Associations or states could provide financial recourse
for the costs related to licensing.
As we continue to move to a more dynamic and mobile
economy, we will need to ensure that your physical location
shouldn't dictate the work you are permitted to do, but rather,
that entrepreneurs should be encouraged to traverse across
state lines and conduct business in a safe way, but that
doesn't unduly burden them in a way that could impact their
livelihood.
Thank you and look forward to your questions.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chair and members of the Committee on Small Business,
Subcommittee on Economic Growth, Tax, and Capital Access
My name is Morris Kleiner. I testify before you today on my
own behalf and not as a representative of the University of
Minnesota or any other organization with which I am affiliated.
I have a Ph.D. in economics from the University of Illinois
at Urbana-Champaign. I am a professor at the Humphrey School of
Public Affairs at the University of Minnesota Twin-Cities. I
also teach at the University's Center for Human Resources and
Labor Studies. I am a visiting scholar at the Federal Reserve
Bank of Minneapolis, a Research Associate at the National
Bureau of Economic Research headquartered in Cambridge,
Massachusetts, and a Visiting Scholar at the Upjohn Institute
for Employment Research in Kalamazoo, Michigan. I have worked
in government, including military service, and consulted for
many public and private sector organizations. My research
specialty includes the analysis of institutions, such as
occupational licensing, in the labor market. I have published
in the top academic journals in labor economics and industrial
relations, and I am the author, co-author, or coeditor of eight
books. Three of these books focus on occupational regulation
and were published in 2006, 2013, and 2015 by the Upjohn Press.
These books have been the leading volumes on occupational
regulations based on sales and citations to the work in Google
Scholar.
Let me start with my conclusions because it establishes
that the wage and other benefits of occupational licensing are
concentrated primarily among individuals who are already well
paid.\1\ Evidence indicates that occupational licensing can
hamper mobility, making it harder for workers to take advantage
of job opportunities in other regions. Moreover, there is
relatively little evidence to show that occupational licensing
has actually improved the quality of delivered services in many
fields, although it has been shown to increase prices and limit
economic output. Hence, governments should require cost-benefit
analyses prior to new licensing rules, allow practitioners to
cross borders without economic penalties, and reduce
regulations on certain occupations.
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\1\ Curr, Henry, 2018, ``How to Rig an Economy: Occupational
Licensing Blunts Competition and Boosts Inequality,'' The Economist,
February 17.
Occupational licensure is the process by which governments
establish qualifications required to practice a trade or
profession, so that only licensed practitioners are allowed by
law to receive pay for doing work in the occupation. During the
early 1950s, occupational licensing in the U.S. covered about
4.5 percent of the workforce, but by 2015 it had climbed to 25
percent according to the U.S. Bureau of Labor Statistics. Below
I enumerate these issues and suggest how these regulations
influence the economy and small businesses. I also provide
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suggestions for improving current policies.
First, occupational licensing makes it more difficult to
enter an occupation and move across political jurisdictions
\2\. While licensing may be an effective means of boosting
wages for some occupations, licensed workers are not always
better off.\3\ Empirical evidence indicates that licensing can
hamper mobility, making it harder for workers to secure jobs in
other states. Occupational licensing can thus act as a
deterrent to geographical movements in several ways. For
instance, because licensing is typically administered at the
state level, workers may have to repeat many of the
requirements and investments necessary to gain licensure when
moving across borders. These requirements can include
qualification criteria such as good moral character, passing
exams, working with or for local practitioners, and engaging in
ongoing professional development activities (an investment that
continues throughout the worker's career). In the absence of
reciprocity agreements--in which one state accepts occupational
licenses granted by another--relicensing requirements can be
prohibitive, in terms of both time and money, thereby
discouraging workers from moving to other licensing
jurisdictions where greater opportunities often exist.
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\2\ See J. Johnson and M. Kleiner, 2017. ``Is Occupational
Licensing a Barrier to Interstate Migration?'', NBER Working Paper No.
24107. December.
\3\ See both Kleiner, M. M. and A. B. Krueger (2010). ``The
Prevalence and Effects of Occupational Licensing,'' British Journal of
Industrial Relations, 48, 676(687 and Kleiner, M. M. and A. B. Drueger,
``Analyzing the Extent and Influence of Occupational Licensing on the
Labor Market,'' Journal of Labor Economics, 31, S173-S202.
Multiple studies have corroborated the negative link
between occupational licensing and worker mobility. The
licensing of manicurists, for example, can impede cross-state
and even international migration--particularly from Vietnam (42
percent of all manicurists in the U.S. in 2000 were
Vietnamese). A well-regarded study finds that the requirement
of an additional one hundred hours of training reduces the
likelihood of having a Vietnamese manicurist in the area by 4.5
percentage points, while states requiring some level of English
proficiency were 5.7 percentage points less likely to have a
Vietnamese manicurist \4\. In other words, policies that affect
migration are not just limited to high-income individuals.
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\4\ Federman, Maya N., David E. Harrington, and Kathy J. Krynski.
2006. ``The Impact of State Licensing Regulations on Low-Skilled
Immigrants: The Case of Vietnamese Manicurists.'' American Economic
Review 96 (2): 237-41.
Beyond its detrimental effects on workers, this lack of
mobility also can harm consumers--especially in rapidly growing
areas. To the extent that licensing slows the influx of new
workers and inhibits greater competition, consumers are unable
to access services at the lowest cost. Small businesses are not
as likely to be able to hire at going wages creating what they
perceive as ``shortages.'' Taken together, these studies
support the view that regulation may limit the number of
practitioners in many fields, and that a policy of reducing
barriers to state or national migration with respect to
licensing requirements could benefit workers, small businesses,
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and consumers.
Second, occupational licensing can affect consumer prices
via several channels, from restrictions on worker mobility to
limitations on advertising and other commercial practices. The
impact of licensing-related practices on prices ranges from 5
to 33 percent, depending on the type of occupational practice
and location \5\. For example, estimates completed in the 1970s
showed that the lack of reciprocity in dentistry raises prices
by 15 percent. A restriction on the number of hygienists that a
dentist may employ increases the average price of a dental
visit by 7 percent \6\. More recent national estimates showed
that restrictions on the tasks a nurse practitioner can perform
without the supervision of a physician raises prices of
healthy-child exams by up to 10 percent, with no effect on
child mortality or insurance rates for malpractice \7\.
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\5\ See Kleiner, Morris M. 2006. ``Licensing Occupations: Ensuring
Quality or Restricting Competition?'' Kalamazoo, MI: W. E. Upjohn
Institute for Employment Research.
\6\ See Kleiner, Morris M., and Robert T. Kudrle. 2000. ``Does
Regulation Affect Economic Outcomes? The Case of Dentistry.'' Journal
of Law and Economics 43 (2): 547-82 and Kleiner, Morris M. 2006.
Licensing Occupations: Ensuring Quality or Restricting Competition?''
Kalamazoo, MI: W. E. Upjohn Institute for Employment Research.
\7\ Kleiner, Morris M., Allison Marier, Kyoung Won Park, and Coady
Wing, 2016, ``Relaxing Occupational Licensing Requirements: Analyzing
Wages and Prices for a Medical Service.'' Journal of Law and Economics,
Vol. 59, Vol. 2. May.
These higher prices could be caused by government
regulations intended to reduce the likelihood of poor service
in the market \8\. The rationale is that higher prices cause
consumers to perceive the service to be of higher quality (even
if this is not actually the case) and thereby demand more of
the service, which drives up the price further. On the other
hand, current practitioners could influence regulatory
practices in order to raise their own wages by limiting entry
or restricting information on service prices in the market
(health care is a prime example of this type of use of
regulations) \9\. Under this framework, occupational licensing
creates a monopoly in the market, with the long-term impacts
being lower-quality services, too few providers, and higher
prices.
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\8\ See U.S. Executive Office of the President. 2015.
``Occupational Licensing: A Framework for Policymakers.'' Washington,
DC: The White House.
\9\ Kleiner, Morris M., Allison Marier, Kyoung Won Park, and Coady
Wing, 2016. ``Relaxing Occupational Licensing Requirements: Analyzing
Wages and Prices for a Medical Service, Journal of Law and Economics,
Vol. 59, Vol. 2. May.
It is difficult to tell from the empirical studies which of
the above causes are more likely. However, regardless of the
exact cause, it is possible for regulated high-income
occupations, such as dentists and lawyers, to raise prices in
ways that may further shift income from lower-income customers
to higher-income practitioners, thus potentially contributing
to greater income inequality \10\. Furthermore, if wealthier
consumers place greater value on (or can afford) higher quality
licensed services, then lower-income individuals with less
demand (or less ability to pay) might be adversely affected by
tougher licensing standards, as they will have even less access
to the increasingly higher priced services.
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\10\ See Kleiner, M. M. and E. Vorotnikov (2017): ``Analyzing
occupational licensing among the states,'' Journal of Regulatory
Economics, 1-27 for a detailed analysis of the issue.
Third, occupational licensing reduces the ability of
individuals to enter regulated occupations. For example,
occupational licensing can reduce labor supply by between 17%-
27%. Men respond to licensing with larger reductions in labor
supply than women, regardless of race \11\. Longitudinal data
show that the longer an occupation is licensed the greater its
ability to limit entry and raise wages for its workers.\12\ In
addition, immigrants have lower levels of licensing than
natives suggesting that it serves as a barrier for this growing
group in the U.S. economy.\13\
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\11\ Blair, Peter, 2018, ``How much of a barrier to entry is
occupational licensing?'' Working Paper. Clemson University.
\12\ Han, S. and Kleiner, M.M., 2016. Analyzing the Influence of
Occupational Licensing Duration and Grandfathering on Labor Market
Outcomes (No. w22810). National Bureau of Economic Research.
\13\ Hugh Cassidy and Tennecia Dacass, 2018. ``Occupational
Licensing and Immigrants,'' Kansas State University Working Paper,
February.
New regulatory policies often include ``grandparent
clauses'' that protect existing workers from having to adhere
to changes in the licensure process; but, new entrants must
meet these higher standards in order to gain entry into the
occupation.\14\ It takes time for older, less-educated workers
to exit the labor market, and for newer workers who have met
the higher entry requirements to enter. This process may limit
the supply of labor and allow those who are already licensed to
work in the occupation to gain economic benefits by limiting
employment growth (and thereby competition) in their field. In
addition, occupational licensing organizations that represent,
for example, accountants, have ratcheted up the requirements to
attain a license, in this case from 4 to 5 years of university
training, which has served to further limit the supply of
licensed practitioners.
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\14\ See Han, S. and Kleiner, M.M., 2016. Analyzing the Influence
of Occupational Licensing Duration and Grandfathering on Labor Market
Outcomes (No. w22810). National Bureau of Economic Research for further
details.
Overall, occupational licensing and the lack of consistency
across state borders with respect to the education and training
of licensed practitioners can carry broad implications for the
economic well-being of individuals. Evidence indicates that
occupational licensing influences the allocation of labor in
critical areas of the economy, such as health care,
construction, and education, and has had an important influence
on employment, wage determination, employee benefits and
prices. Some even suggest that occupational licensing dampens
the rate of innovation and misallocates resources within an
occupation by setting fixed and in some cases arbitrary rules
\15\.
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\15\ Schmidt, James, A. Jr., 2012. ``New and Larger Costs of
Monopoly and Tariffs''. Economic Policy Paper 12-5. Minneapolis,
Minnesota. Federal Reserve Bank of Minneapolis.
In order to enhance the benefits and reduce the costs of
this form of regulation, the following three policies are
recommended.\16\ First, state governments should require and
the federal government should encourage cost-benefit analyses
prior to the approval of new occupational licensing standards.
Second, licensed individuals should be allowed to move across
political jurisdictions with minimal retraining or residency
requirements. Third, where politically feasible, governments
should reclassify certain licensed occupations to a system of
certification or should remove regulation on some professions
altogether. These proposals should lead to employment growth in
affected occupations and a reduction in consumer prices.
Replacing licensing with certification in certain occupations,
thereby providing more competition, would, in most cases,
result in substantial gains in economic growth and employment
without measurable harm to consumers.
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\16\ Kleiner, Morris M., 2015. Reforming Occupational Licensing
Policies. Retrieved from the University of Minnesota Digital
Conservancy, http://hdl.handle.net/11299/190817.
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Addendum
Hierarchy of occupational regulations from least to most
restrictive: ``Registration'' means a requirement established
by a legislative body in which an individual gives notice to
the government that may include the individual's name and
address, the individual's agent for service of process, the
location of the activity to be performed, and a description of
the service the individual provides. ``Registration'' does not
include personal qualifications but may require a bond or
insurance. Upon approval, the individual may use ``registered''
as a designated title. A non-registered individual may not
perform the occupation for compensation or use ``registered''
as a designated title. ``Registration'' is not transferable and
is not a synonymous with an ``occupational license.''
``Certification'' is a voluntary program in which the
government grants nontransferable recognition to an individual
who meets personal qualifications established by a legislative
body or private certification organization. Upon approval, the
individual may use ``certified'' as a designated title. A non-
certified individual may also perform the lawful occupation for
compensation but may not use the title ``certified.''
``Certification'' is not synonymous with an ``occupational
license.''
``Occupational license'' is a nontransferable authorization
in law for an individual to perform a lawful occupation for
compensation based on meeting personal qualifications
established by a legislative body. It is illegal for an
individual who does not possess an occupational license to
perform the occupation for compensation. Occupational licensing
is the most restrictive form of occupational regulation.