What the US and EU can Learn from China’s Occupational Licensing Reform

 Tingting Zhang, 12   Mengjie Lyu, 1 and Edward Timmons 2

1: School of Labor and Employment Relations
University of Illinois at Urbana-Champaign
2: Knee Center for the Study of Occupational Regulation

     Designing occupational regulations capable of balancing the need to protect consumers on the one hand with the need to minimize barriers to employment and entrepreneurship on the other has become a public policy priority in many countries 1 , including China. In a State Council executive meeting on December 30, 2019, the Chinese Premier addressed this reality by announcing: “China will phase out all performance-based qualifications for skilled personnel and pursue an occupational skill ranking system to train market-oriented skilled workers.” 2 As the US, EU, and other developed nations reconsider occupational licensing there are important takeaways from the Chinese experience.

      In China, unlike many developed countries such as the United States, occupational qualifications have been evaluated and managed at the national level since the 1950s, with the Ministry of Personnel responsible for occupational qualification administration for professionals and the Ministry of Labor overseeing skilled trade workers. Until the 1990s, the skill assessment system mainly applied to professional and technical workers in state-owned companies and institutions, and the assessed qualifications were directly linked to job assignments and wage
levels

     In a series of economic reforms starting in the 1980s, the Chinese government restructured the labor and employment system to be more market-oriented and supportive of the development of much-needed talent. Under labor law, the state determined occupation classification, generated occupational standards, and implemented an occupational certification system for regulated occupations. The National Certification and Licensing System was created in 1994. The Ministry of Labor and the Ministry of Personnel took the lead and worked with the competent ministries on the design of the qualification standards. For example, the property management license 3 was administrated and evaluated by the Ministry of Housing and Urban- Rural Development, and Aquatic product processor certification 4 was assigned to the Ministry of Agriculture. Workers who pass the assessment obtain a government-issued qualification certification. Occupational qualifications are divided into entry assessment and skill-level assessment. The entry assessment is the same as licensing in the US, whereby a license is required to practice certain occupations. The skill-level assessment maps more closely to the US “certification,” defined as “right-to-title” but not required to practice. In the Chinese system, the skill-level assessment is not required to work in an occupation, but it demonstrates the qualification holder’s skill level in performing a specific job.

     In the next decade, the number of occupational qualifications grew rapidly. By the early 2000s, the Ministry of Personnel had either reformed or established 37 professional licenses, prompted by many other state ministries and professional associations 5 , and the Ministry of Labor had increased the number of skilled trade licenses to 90. 6

   The proliferation of occupational regulations peaked around 2010. By 2013, 618 occupational certifications and licenses had been established by various state ministries, 219 for professional and technical occupations and 399 for skilled trades. In addition, local governments and professional associations developed 1,875 certifications and licensing regulations – 389 for professional occupations and 1,486 for skilled trades. 7 For added context, this total is smaller than the estimated 1,100 occupations (closer to 12,000 in total) licensed in at least one state, 8 and as of 2020, 8,165 unique civilian occupational certifications were recognized in the US. 9

     The aggressive promotion of occupational credentialing led many young workers to pursue multiple qualifications to boost their employment opportunities. The number taking the skilled trade qualification exam rose from 3.38 million in 1999 to 16.6 million in 2010; the number obtaining a license or certification jumped from 2.92 million in 1999 to 13.9 million in 2010 10 .

     The National Certification and Licensing System served the purpose of developing a massive skilled labor force rapidly. At the same time, however, the system created barriers for workers, and the disorganized system and lack of transparency caused serious concerns. For example, there was no central hub to verify the legitimacy of qualifications. Some occupations did not have a clear scope of practice or require specific knowledge and thus did not really warrant a license or certification. Various state ministries, subsidiaries, professional associations, and local governments went beyond their delegated capacities and illegally created additional licenses and certifications without formal approval. Some licenses and certifications administrated by different entities covered the same occupation; neither the employers nor workers had concrete information about which to follow. Several qualification assessments could not validate certification holders’ ability to perform the job adequately. Last but not least, the system did not reflect changes in occupations, in particular, the qualification standards and exam were not update quickly to effectively reflect the talent needs of the market and employers. For example, the Ministry of Human Resources and Social Security (MHRSS) classified 347 new occupations (e.g., delivery person, online security administrator, futures trader) and removed 894 obsolete ones (e.g., restaurant dish cleaner), many of which were linked to a qualification assessment.

     Companies, especially small and mid-size businesses, still rely on these qualifications in their selection process to save time, even though some are not mandatory. In a clear example of the credentialing effect of occupational qualifications, a four-star hotel manager remarked: “If only one candidate has the certificate among all 20 applicants, I will choose the one with the certificate without hesitation.” 11 This understandably confuses job seekers. Meanwhile, to become certified, people spend time preparing for exams, pay fees, and go through an excessive number of administrative approvals. The burden could be multiplied for many young people because they don’t know which occupation they will get, and they tend to obtain more than one qualification.

     The state has recognized the challenges of the system, and in 2007, began to reform occupational qualification evaluation. 12 The basic idea was to let the market, rather than administrative ministries, evaluate skills. Licensing (“entry-qualification”) and certification (“skill-level assessment”) were redefined. Licensing now applies to occupations that influence public security, health, and financial safety and is established by laws, administrative regulations, or State Council decrees. Certification applies to common occupations with high professional and skill requirements. 13 In a second step, between 2013 and 2017, 434 state occupational licenses and certifications, 14 90 licenses for skilled trade workers, 15 and all occupational qualification assessments established by local governments (except those added to the national system with approval) 16 were annulled. In a third step, the Ministry of Human Resources and Social Security began to provide a regularly updated National Directory of Occupational Certification and Licensing to the general public since 2017. 17 The first version of the directory includes 36 licenses and 23 certifications for professional occupations, 5 licenses and 76 certifications for skilled trade jobs. 18 With further simplification of the qualification system, certifications for all skilled trade jobs, except seven that influence health and public safety, were removed from the Directory in 2020. 19 As of 2021, only 31 licenses and 27 certifications for professional occupations remained in the Directory. 20

      Removing the majority of the occupational qualification assessment responsibilities from state ministries does not mean the cancelation of skill evaluation. To reinforce the market- oriented approach, the Chinese government intends to strengthen supervision and implement a registration system in which skill evaluation is conducted by the credible businesses and third- party training and evaluation organizations, including government-approved vocational schools and colleges. 21 Starting in 2020, about 18 centrally administered state-owned enterprises and 900 firms from 30 provinces piloted skill evaluation, and over 40,000 qualification certifications were issued. 22 Government subsidies are provided to employers who organize certain skill training, and to workers who participate in the training and pass skill evaluation. 23 The key change is to allow employers to evaluate skills and take responsibility for their skill assessment outcomes. The public policy goal is to streamline administration, improve regulation and services, improve market efficiency, connect training and skill evaluation more closely to develop skilled talent, and boost industrial upgrading and high-quality development.

     What are the takeaways of the Chinese experience with occupational licensing? First, it is important that the appropriate regulation is used. Regulation has costs and benefits, and it is important to use the appropriate regulatory tool to accomplish the desired objective. Occupational licensing is the most stringent regulation and it should not be the default solution and should only be used if absolutely necessary. Second, regulations should be designed to limit uncertainty and disruption in communication between workers and firms. Chinese policy makers recognized that employers in many cases were best positioned to evaluate the skills of prospective job seekers and could shoulder the responsibility of evaluating skills. In some cases, more stringent regulation was necessary, but not in all cases. As policy makers in Western democracies continue to reconsider the scope of occupational licensing, the Chinese experience contains some important lessons that should not be ignored so that the regulatory framework is appropriately constructed to rightly balance the need for consumer protection without imposing unnecessary costs.

1 See for example:
https://obamawhitehouse.archives.gov/sites/default/files/docs/licensing_report_final_nonembargo.pdf and
https://link.springer.com/article/10.1007/s11151-019-09711-8
2 China to promote occupational skill ranking system | english.scio.gov.cn
http://english.scio.gov.cn/m/pressroom/2020-01/03/content_75582907.htm

3 The certified property managers are responsible for real estate property management and its daily operation,
including but not limit to supervising and coordinating building maintenance and work orders, doing light
handyman and cleaning work, resolving tenant concerns and complaints, and communicating regularly with the
property owner on the status of the property.

4 The Aquatic product processor certification certifies workers who work in fish handling and primary and
secondary seafood processing for the retail trade (e.g., filleting, freezing, and producing frozen or canned
products).
5 http://www.xinhuanet.com//politics/2017-01/19/c_129453002.htm

6 http://www.mohrss.gov.cn/SYrlzyhshbzb/dongtaixinwen/buneiyaowen/201511/t20151113_225378.htm
7 http://www.gov.cn/zhengce/2015-07/31/content_2906437.htm
8 The State of Occupational Licensing: Research, State Policies and Trends, National Conference of State
Legislatures, https://www.ncsl.org/Portals/1/HTML_LargeReports/occupationallicensing_final.htm
9 https://credentialengine.org/wp-content/uploads/2021/02/Counting-Credentials-2021.pdf
10 Data source: Statistical Bulletin on the Development of Human Resource and Society from MOHRSS, 1999-2019.
http://www.mohrss.gov.cn/SYrlzyhshbzb/zwgk/szrs/tjgb/

11 http://www.gov.cn/zhengce/2016-06/30/content_5087162.htm
12 http://www.gov.cn/zhengce/content/2008-03/28/content_7323.htm and http://www.gov.cn/zwgk/2008-
01/07/content_851653.htm

13 http://www.gov.cn/zwgk/2008-01/07/content_851653.htm
14 http://www.gov.cn/xinwen/2017-02/20/content_5169264.htm
15 http://www.mohrss.gov.cn/zynljss/ZYNLJSSgongzuodongtai/201511/t20151120_226121.html
16 http://www.mohrss.gov.cn/SYrlzyhshbzb/rencairenshi/zcwj/zhuanyejishurenyuan/201408/t20140814_138388.ht
ml
17
http://www.mohrss.gov.cn/SYrlzyhshbzb/rencairenshi/zcwj/zhuanyejishurenyuan/201709/t20170915_277385.ht
ml
18 http://www.gov.cn/fuwu/2017-09/17/content_5225705.htm
19 http://www.gov.cn/zhengce/zhengceku/2020-07/28/content_5530821.htm
20 http://www.mohrss.gov.cn/SYrlzyhshbzb/zwgk/gggs/tg/202101/t20210112_407518.html
21 http://www.mohrss.gov.cn/xxgk2020/fdzdgknr/zcfg/gfxwj/rcrs/202011/t20201112_396257.html
22 http://www.gov.cn/zhengce/2020-01/03/content_5466157.htm
23 http://www.gov.cn/zhengce/content/2019-05/24/content_5394415.htm

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