With the midterms now behind us, lawmakers should focus on eliminating one of the biggest barriers to creating jobs in Utah: occupational licensing.
Once limited to fields like medicine and dentistry, licensing laws have spread dramatically in recent years. Today, over 200,000 Utah workers need a license to work. That’s over 16 percent of the state’s workforce — and well over the share of workers who are unionized. By comparison, during the 1950s, just 5 percent of American workers were licensed.
These barriers to entry for aspiring workers restrict competition in licensed occupations, limiting economic opportunity and driving up costs for consumers. Now a new Institute for Justice report by Dr. Morris Kleiner, professor at the University of Minnesota’s Humphrey School of Public Affairs, and economist Dr. Evgeny Vorotnikov shows the enormous costs licensing imposes on Utah’s economy.
In Utah, licensing results in almost 20,000 fewer jobs. With licensing laws limiting the pool of people who can work in a licensed occupation, those with a license can charge more for their services than they could in a more competitive market. As a result, licensing costs the state’s economy nearly $88 million in “deadweight loss,” or reduced economic output, each year.
But even that figure doesn’t capture all the economic costs of licensing. For instance, it doesn’t include the time and money people waste completing excessive licensing requirements. Nor does it account for the lost potential of people who want to work in a given field but are blocked by licensing.
To better account for these costs, Kleiner and Vorotnikov also include “misallocated resources” as a broader measure of the value lost from the economy due to licensing. For Utah, licensing costs the economy over $1.9 billion in misallocated resources. Nationwide, occupational licensing laws destroy nearly 2 million jobs and cost the economy upwards of $184 billion.
Defenders of licensing often claim licenses are necessary to ensure quality and to protect the public’s health and safety. But when the Obama administration’s economic advisers examined occupational licensing in a 2015 white paper, they noted that “in a number of other studies, licensing did not increase the quality of goods and services.”
Moreover, licensing burdens are often wildly disproportionate to the actual health and safety risks associated with an occupation. For instance, in Utah, it takes 1,600 hours of classes to become licensed to cut and style hair as a cosmetologist. In contrast, it takes only 120 hours of training to become licensed to provide lifesaving aid as an emergency medical technician. Rather than protect the public from harm, many licenses only protect the licensed from competition.
Fortunately, Utah has an opportunity to be a leader on licensing reform. Last year, it was selected for an 11-state learning consortium funded by the U.S. Department of Labor and in partnership with the National Conference of State Legislatures, the Council of State Governments and the National Governors Association Center for Best Practices. The consortium is devoted to developing and implementing effective reform strategies to reduce and remove barriers to labor market entry.
The Beehive State has already made some progress. For instance, last year, Utah eliminated onerous experience and exam requirements and lowered fees for certain construction contractors, bringing the state more in line with others and expanding opportunities for entry into these fields.1 comment on this story
To slash through Utah’s thicket of licensing red tape, policymakers should rigorously review licensing laws on the books as well as proposed licensing regimes. In both cases, the key is to study whether licensing actually protects the public from real, substantial harms — and whether less restrictive, more targeted regulations, like inspections or voluntary certification, can address consumer protection concerns without the job losses and steep costs from licensing.
Given the high costs and scant public benefits of licensing, policymakers can and should repeal needless licenses, replacing them, if necessary, with less restrictive regulations. By letting Utahns earn a living instead of a license, they can create more jobs, expand economic opportunity and inject billions of dollars into the state’s economy.