Minnesota State Government Finance and Policy and Elections Committee – 3/2/21
March 3, 2021
What Carvana Can Teach us About Occupational Licensing
March 3, 2021
Written & Submitted by: Dr. Edward Timmons
Read & Presented by: Alanna Wilson
Chairwoman Riddle and all distinguished members of the Committee on Professional Registration, thank you for granting me the opportunity to testify on the subject of occupational licensing in the state of Missouri.
I am a professor of economics at Saint Francis University in Loretto, PA, and the director of the Knee Center for the Study of Occupational Regulation, the only university-based academic center focusing solely on the topic of occupational regulation. My published research on the topic has been cited by the White House and some federal agencies. I have been involved with or led three federally funded grant projects exploring the issue.
The main takeaways from my comments are as follows
- Occupational licensing reduces mobility. This imposes significant burden on military families that tend to be more mobile than the civilian population.
- Occupational licensing imposes significant costs that are disproportionately burdening the most vulnerable Missouri citizens.
Some Background on Occupational Licensing
Occupational licensing laws establish mandatory requirements for entry into a profession. Occupational licensing is not the same thing as regulation, but rather, occupational licensing is the strictest form of occupational regulation, and thus its costs are most significant for consumers and aspiring workers. As an example, chefs and restaurant staff are not required to obtain a license to work. This does not mean that the workers are not subject to regulation. Instead, the restaurant is subject to random inspections and is also subject to consumer feedback and ratings from a variety of private sources.
The fraction of the US workforce that is licensed has significantly grown in the past 60 years. In the 1950s, approximately 5 percent of workers were licensed.[i] Today, that figure stands at 21.5 percent.[ii] Missouri is very similar to the national average—21 percent of workers are estimated to be licensed—and it has the fifteenth-highest percentage of workers licensed among all states.[iii]
The purpose of occupational licensing laws is to protect consumers and maintain a minimum quality standard for professions. The existing evidence that occupational licensing fulfills this purpose is ambiguous at best.[iv] Research examining users of an online platform for residential home services finds evidence that consumers care more about online peer reviews that licensing status.[v] In fact, new research indicates that licensing may reduce consumer perceptions of the quality of service.[vi] On the other hand, evidence on the costs of licensing is much more conclusive. Licensing is found to increase prices by anywhere from 3 to 16 percent.[vii] In addition, licensing is found to reduce the supply of workers by 17 to 27 percent.[viii]
Occupational Licensing Restricts Mobility
There is significant variation in occupational licensing laws from state to state. Justifying this difference from a public health and welfare standpoint is difficult. The state of Arizona was the first state to recognize occupational licenses from other states.[ix] Arizona’s licensing boards now recognize out-of-state licenses for individuals with licensing in good standing and that have been in effect for at least one year.
A recently published national study finds evidence that occupational licensing restricts mobility.[x] Licensed workers with an interest in moving to Missouri may be discouraged from moving from their home state if they are required to take an additional exam or complete additional requirements. The exam and education requirements are the most expensive component of occupational licensing laws. This expense potentially places disproportionate burden on low-income and vulnerable populations. Much like a flat tax, the fees and expenses to obtain an occupational license are often the same for both high- and low-income citizens. As a result, low-income individuals must devote a greater share of their income to meeting occupational licensing requirements.
Military families are expect to relocate frequently as part of their military service. This potentially places a significant burden on military spouses who may not be able to transfer their license to Missouri. It is important to note, however, that this problem is not unique to military families. Any family that moves to Missouri may experience a similar problem when moving into the state.
I would encourage policymakers in the state to reconsider the costs and benefits of occupational licensing as a policy tool to enhance consumer safety. As noted, there are a number of policy alternatives—such as private certification—that fulfill the same regulatory objective and do not have the same cost. As an additional example, the National Institute for Automotive Service Excellence is a private nonprofit entity that allows auto mechanics to obtain a credential that can serve as a signal to consumers that mechanics have completed rigorous training. Occupational licensing is not the only regulatory tool available to policymakers. Instead, occupational licensing is the most expensive and cumbersome policy tool, and there is little evidence that it serves its intended purpose. Policymakers should exercise prudence and always carefully consider the costs of occupational licensing.
[i] Morris M. Kleiner and Alan B. Krueger, “The Prevalence and Effects of Occupational Licensing,” British Journal of Industrial Relations 48, no. 4 (2010): 676–87.
[ii] . Bureau of Labor Statistics, “49. Certification and Licensing Status of the Civilian Noninstitutional Population 16 Years and Over by Employment Status, 2017 Annual Averages,” February 8, 2018,
https://www.bls.gov/cps/aa2017/cpsaat49.htm.
[iii] Morris M. Kleiner and Evgeny Vorotnikov, “Analyzing Occupational Licensing among the States,” Journal of Regulatory Economics 52, no. 2 (2017): 132–58.
[iv] US Department of the Treasury, Council of Economic Advisers, and US Department of Labor, Occupational Licensing: A Framework for Policymakers, July 2015
[v] Chiara Farronato, Andrey Fradkin, Bradley Larsen, and Erik Brynjolfsson, “Consumer Protection in an Online World: An Analysis of Occupational Licensing,” NBER Working Paper No. 26601, January 2020.
[vi] Darwyyn Deyo, “Licensing and Service Quality: Evidence Using Yelp Consumer Reviews” (unpublished manuscript, n.d.), PDF file, https://www.aeaweb.org/conference/2017/preliminary/paper/efy2hraQ.
[vii] US Department of the Treasury, Council of Economic Advisers, and US Department of Labor, Occupational Licensing: A Framework for Policymakers, July 2015
[viii] Peter Blair and Bobby Chung, “How Much of a Barrier Is Occupational Licensing,” British Journal of Industrial Relations 57, no. 4 (2019): 919–43.
[ix] Matthew Shafer, Understanding Arizona’s Universal Occupational Licensing Bill, The Council of State Governments, June 2019, https://knowledgecenter.csg.org/kc/content/understanding-arizonas-universal-occupational-licensing-recognition-bill
[x] Janna Johnson and Morris M. Kleiner, “Is Occupational Licensing a Barrier to Interstate Migration,” American Economic Journal: Economic Policy, forthcoming.
