When the government mandates that you must have a license in order to work, it stands to reason that this may hurt people looking to find a job. Occupational licensing laws – requirements that you must meet certain criteria before the government allows you to work – are increasingly common. A new study indicates that these laws are one of the reasons why some people have a hard time moving up the economic ladder.
A new study by the Archbridge Institute looks at this issue. It is authored by Edward Timmons and John Hazenstab of St. Francis University, Andrew Meehan of Central Michigan University, and Brian Meehan of the Campbell School of Business at Berry College. In it, these authors examine how licensing laws affect labor mobility, or the ability of individuals to earn more than their parents did. They conclude that, indeed, licensing laws have a real effect:
… our analysis suggests that growth in occupational licensing of low- and moderate-income occupations may be limiting opportunities for upward economic mobility (a 1.7% to 6.7% reduction evaluated at the mean). Licensing shrinks the pool of potential laborers by creating barriers to entry and this reduction in mobility also seems to relate to increases in income inequality (3.9% to 15.4% evaluated at the mean)…
Occupation licensing policy has been a growing phenomenon over the past few decades in the United States. Policy makers should take note of the potential distributional consequences of this growing phenomenon as they reconsider occupational licensing requirements for low- and moderate-income occupations. In addition to raising prices for consumers, occupational licensing may be creating barriers to opportunity that prevent the least fortunate Americans from achieving the American dream of prosperity.
This is something that Dan Greenberg and I wrote about in a 2016 AAI study on occupational licensing. As we noted, the problems caused by licensing are especially onerous in Arkansas:
Our state was ranked the fifth “most extensively and onerously licensed state” in the Union in a recent survey by the Institute for Justice. That report charged that “Arkansas licenses a number of occupations that few other states do … Moreover, many occupations are subject to entry restrictions that exceed national averages.” Similarly, Dr. David Mitchell, a professor of economics at the University of Central Arkansas, supplied related testimony to the General Assembly’s Public Health, Welfare and Labor Committee last year. He explained that Arkansas policymakers have burdened our economy far more than surrounding states through occupational regulation, making Arkansas one of the worst environments for job creation in the country. Mitchell noted that Arkansas places the second-highest burdens of experience and education in the country on licensed occupations; for instance, to obtain a professional license in Arkansas, on average one needs more than twice as much education and experience as in Texas.
If we want people to advance economic mobility or reduce income inequality in Arkansas, then it’s essential to reform the state’s occupational licensing laws. More than in most states, they are a barrier to economic advancement.
Working hard to have a better life than your parents is the essence of the American Dream. As the Archbridge Institute’s analysis shows, occupational licensing places a big barrier in the path of many people trying to achieve that dream. Other states are taking steps to reform their licensing laws. Arkansas should follow suit.