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Does licensing occupations amount to protectionism?

Experts argue that Minnesota’s system of licensing individuals in scores of occupations hurts the state’s economy.

Lilian Anderson won a court case in 2005 that persuaded the Minnesota Board of Barber and Cosmetologist Examiners to exempt her from its licensing requirements.

Lilian Anderson, who is from Cameroon in West Africa, landed in Minnesota in 1993. Now she owns her own business in Minneapolis, but getting established was no walk in the park.

In 2005, Anderson won a court case that persuaded the Minnesota Board of Barber and Cosmetologist Examiners to exempt her from its licensing requirements. She says that had she been required to get a license, she might have had to spend as much as $10,000 and 1,500 hours on training. Had she lost her court case, “I would have been worrying about being shut down,” fined and even jailed for operating without a license.

Today her business, Extension Plus Hair and Wigs, is doing well. The Institute for Justice, a non-profit, libertarian-oriented law firm, represented Anderson, clearing the way for her and other commercial hair braiders throughout Minnesota to operate free of burdensome licensing requirements.

But the litigation was small potatoes compared with the ambitious proposal the institute and a handful of Minnesota lawmakers from both sides of the aisle are now backing. They are seeking broad legislation to limit the growth of occupational licensing in Minnesota and to restrain governments from applying licensing laws which, in their view, often unnecessarily and effectively protect established businesses by fencing out newcomers.

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Their bill, “The Licensing Relief and Job Creation Act,” has a persistent champion in Sen. Chris Gerlach, the Apple Valley Republican who chairs the Senate’s Commerce and Consumer Affairs Committee. Rep. Keith Downey, a Republican from Edina, is sponsoring a similar measure in the House. Prominent among DFL co-sponsors is Sen. Ann Rest, the 28-year legislator from New Hope who has served as assistant majority leader in both the Senate and the House. Yet the bill faces a tough journey. 

Opposition Surfaces

Gerlach’s committee approved the bill in a near-unanimous voice vote Feb. 15, after a last-minute rush of lobbyists appeared to oppose the legislation. The next stop is the Senate Judiciary Committee, but its chairman, Sen. Warren Limmer, has yet to schedule a hearing.

“If nothing else, we’ve sounded a clarion call,” says Gerlach, who vows to keep pursuing the legislation. He says Minnesota’s system of licensing individuals in scores of occupations hurts the state’s economy by thickening government bureaucracy, raising consumer prices, reducing jobs and suppressing opportunities for entrepreneurs like Lilian Anderson.

Beyond the Legislature, Gerlach has plenty of company. Economists say occupational licensing has metastasized into a labyrinthian, modern-day version of the “military-industrial complex” — the government-business alliance that President Dwight Eisenhower warned the nation about in his farewell address upon leaving the White House in January of 1961. Generally, economists prefer a voluntary system of certification rather than government-enforced licensing for many occupations.

Roughly 30 percent of the nation’s workers are licensed today — up from about 10 percent a generation ago and more than twice the portion of the work force now belonging to labor unions. All told, more than 1,100 occupations are now licensed by at least one state: florists, interior designers, private detectives, locksmiths, hearing-aid fitters, conveyor-belt operators, retailers of frozen desserts — the lists go on forever. The number of licensed occupations has exploded as new fields emerge. Often, the regulations require examinations, pricey schooling and hundreds of hours of training in order to obtain a license.

Want a Job? Get a license

Minnesota’s “licensing industrial complex” included 131 state-regulated occupations covering 27 percent of the work force in 2004, up from just 20 occupations covering 5 percent of the workers in 1950.

Those numbers come from Morris Kleiner, a labor economist at the University of Minnesota who has studied occupational licensing for more than 30 years. Kleiner estimates that shifting from licensing to certification could create more than 15,000 jobs in Minnesota. He testified at Gerlach’s hearing that occupational licensing laws reduce competition, thereby forcing Minnesota consumers to pay up to $3.6 billion more annually for goods and services and lowering the state’s economic growth by up to $1 billion a year.

Defenders of occupational licensing argue that it is necessary to protect consumers from threats to their health and safety. Kleiner and other economists counter that while this protection is justified for some occupations, for the most part it amounts to two practices that damage the economy: “rent-seeking” and “regulatory capture.”

Rent-seeking refers to efforts by interest groups to win greater economic benefits for themselves at the expense of the general public. Regulatory capture occurs when a regulatory agency created to act in the public interest instead advances the special interests of the entities it is charged with regulating.

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The greater the push to curb questionable licensing practices, the more their defenders push back.

At Gerlach’s hearing, representatives from the International Brotherhood of Electrical Workers union and from associations of accountants, architects, auto dealers, audiologists, and electrical and mechanical contractors voiced concerns about the bill. So did officials from three state agencies — the Department of Labor and Industry, the Minnesota Office of Higher Education and the Department of Commerce — and from League of Minnesota Cities.

Concerns about litigation

Kris Eiden, deputy commissioner at the Department of Labor and Industry, said her agency licenses workers in seven different trades.

Eiden said that the bill could expose the department to costly litigation, effectively transferring the power over the licensing process from the Legislature to the courts. Legislators should decide on the degree of occupational regulation through an open process, on a case by case basis, rather than having the decisions made by a judge, she said.

But Matt Swenson, a spokesperson with the state’s Department of Commerce, says the legislation has “has been amended to exempt the vast majority of our licensees.”

Still, Patrick Hynes, a lobbyist for the Minnesota League of Cities, said the league invariably resists attempts by legislators to restrict how cities handle regulation. “This (bill) really creates legislation from the bench” by giving courts the power to decide the appropriate level of occupational regulation, he said.

Lee McGrath, executive director for the Institute for Justice’s Minnesota chapter,  countered that government agencies and licensing boards control the volume of litigation by choosing who to go after and when. Moreover, he argued that litigation costs “are tiny compared to the $3.6 billion annual saving to taxpayers” that could be realized by throttling back on licensing in Minnesota.

“A lot of the fears are unfounded,” Gerlach said.

A similar bill made it through Gerlach’s committee last year, but got no further. Gerlach has made changes this year, including exempting public safety workers.

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Last year, Florida legislators debated a bill to eliminate licensing requirements from 20 occupations, ranging from hair-braiding to teaching ballroom dancing. Lobbyists for retaining licensing for these occupations rallied, and the bill was defeated.

McGrath said last year’s bill in Minnesota took a different approach by establishing a statutory right to pursue an occupation, instead of eliminating licensing for specific occupations as proposed in Florida. The 2012 bill gives an individual without a license the right to go to court if he or she gets an order from a licensing authority to stop working in a licensed occupation. If the individual claims the licensing is a substantial burden, the authority would then have to prove a license is needed to protect the citizens from threats to their health or safety.

First, Second Ladies push overhaul

Criticism of occupational licensing practices has mounted in recent yearsThis year, First Lady Michelle Obama and Jill Biden, wife of Vice President Joe Biden, are ratcheting up a high-profile campaign to help military spouses get past licensing barriers when they move from one military base to another. In fields ranging from childcare providers and accounting to real estate brokers, dental hygienists and social workers, the spouses find it difficult to land jobs because of licensing provisions that vary from state to state.

“More than 100,000 military spouses are affected by this maze of credentialing and requirements,” Michelle Obama told the National Governors Association at a White House meeting on Feb. 27. “Far too often, they’re forced to take entry-level classes, or pay hundreds of dollars in fees, or wait weeks or months for their paperwork to be processed — all before they can even get a job.

“The vast majority of these spouses are clearly qualified…They’ve got the right skills, they’ve worked in their fields for many years, many of them, but so often that doesn’t matter. It doesn’t count. Their skills go unused and, more importantly, their families go without the crucial source of income that so many of them need.”

Minnesota’s key players

In Minnesota, the Institute for Justice has pursued litigation challenging occupational licensing and exposed problems with such regulation since it began operating here in 2004.  The institute was engaged in the litigation several years ago that led Minneapolis city officials to loosen up practices limiting licenses to taxi drivers. It is now involved in a similar battle in Milwaukee.

The U’s Morris Kleiner is widely recognized as a leading international expert on the economics of occupational licensing. He has published more than 30 articles in academic journals and other research publications on the topic, including three recently with Alan Krueger, now chairman of the White House Council of Economic Advisers. Last year, Kleiner spoke before a committee of the British Parliament on job licensing.

In 2006, Kleiner wrote a book, which he describes as “the view from 30,000 feet,” explaining how occupational licensing often restricts competition. His second book on the topic, to be published later this year, digs into case studies of licensing interior designers, mortgage bankers, pre-school teachers, electricians, plumbers, dentists and dental hygienists.

“It’s fascinating,” Kleiner said. “It’s kept my interest for a long time. It’s the body of work I’ve gotten the most attention for.”

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So with all of this critical thinking about occupational licensing concentrated in Minnesota, will Chris Gerlach’s legislation get any further this year than it did in 2011?

Let’s give the last word to Ann Rest, who says she’s “not 100 percent” on board with this bill. Yet she’s concerned about occupational licensing that fences out entrepreneurs, and unsettled by business associations that come to legislators asking for such regulation.

“Is this the right bill? Maybe, maybe not,” she says, but “we need to keep talking about this” in a bi-partisan way. “This whole issue is something the Legislature needs to keep discussing.”