Entrepreneurship has been a staple of the American dream since the founding of our nation. Today, however, the entrepreneurial spirit that once fueled the world’s greatest economic power is in dire condition. New business creation rates across the country, for instance, are at record lows. In fact, according to Gallup, American business closures now outnumber business start-ups.
Many scholars have noted the correlation between America’s entrepreneurial decline and the rise of policies restricting economic freedom. One example of those policies detrimental to entrepreneurship, which often escapes wide public attention, is overbearing occupational licensing laws.
Many Americans equate a license for work with specialized professions, such as those found in the medical or legal fields; however, states have expanded licensing requirements to occupations beyond high-risk or even technically complex fields. Federal government reports indicate that the number of workers in America with jobs that require state licenses has grown by 500% since the mid-twentieth century. In fact, over one-quarter of American workers are now required to have a license for their employment.
Training and other licensing requirements are certainly necessary in some professions. If a field is not particularly high risk or specialized, however, licensing can act only as an unnecessary obstacle to those seeking employment or attempting to start their own business. In addition, these laws can disproportionately affect low-income workers and entrepreneurs, ultimately acting as the barrier between poverty and prosperity.
The significant impact of licensure can be gleaned through a look at states around the nation. In a recent study from the Institute for Justice, researchers examined the scope and burden of occupational licensing laws in the United States, observing the licensing requirements of more than 100 of the most common low to moderate-income occupations and how they affect citizens in states across the country.
After gathering the data, researchers ranked states by the burden of their occupational licensing requirements. Hawaii was found to have the most burdensome licensing mandates, while Pennsylvania was found to have the least burdensome laws.
Additionally, the research indicates that traditionally conservative-leaning states are not exempt from the problem. For example, Arkansas, Florida, and Arizona are all ranked among the top five states with the most problematic licensure laws. Oklahoma, a generally welcoming environment for free-market ideas, is ranked as the 11th worst state for burdensome occupational licensing requirements.
Occupational licenses in Oklahoma require an average of 416 days in education or training. In addition, workers must pay an average fee of $116 for a license. While it is worth noting that Oklahoma requires higher fees for low-income occupations than many other states, it is even more significant that other states require much less time for training and education to obtain a license: nearly 75% less in some cases.
Another important fact to recognize is that licensing laws not only force workers and entrepreneurs to pay fees and undergo training, they also create costs that are passed on to other participants in the market. Economists have calculated that state occupational licensing costs American consumers $127 billion per year. Thus, the average household in the U.S. is left with a cost of over $1,000 per year due to state licensing requirements. This effect on hard-working families cannot be ignored.
Thirty-five years ago, President Ronald Reagan articulated an unmistakable motif in the national movement for economic freedom: “Government’s first duty is to protect the people, not run their lives.” Policymakers are constantly asked to balance competing interests, varying perspectives, and coinciding rights. The issue of occupational licensing is no exception. Lawmakers must affirm our licensure laws’ consistency with government’s first duty to provide protection for citizens, without acting as an unnecessary hindrance to opportunity and entrepreneurship.
The breadth of the licensing problem has manifested over several decades. Therefore, it is likely that the issue will not be resolved in one legislative session, one administration, or even one decade. Maintaining liberty is a constant endeavor. Potential entrepreneurs and workers, however, deserve to have their elected officials begin the conversation about reform sooner rather than later.