Does licensing occupations amount to protectionism?

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.

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.

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.

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.”

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.”

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Comments (8)

  1. Submitted by Rachel Kahler on 03/07/2012 - 09:50 am.

    Interesting

    Now, here’s a deregulation I can get behind. In some professions, licensing should be required (e.g., medical professionals), but salon service providers? No. When the services go beyond hair and makeup, then maybe (chemical peels, and botox), but really, if you go to an unlicensed person to get your hair done and you end up with fried hair, it was your decision to take that risk. I also can’t see why states can’t combine licensing of medical professionals. Set up the standards, and all of the states that meet those standards are granted reciprocity for licensing. There are very few professions that have state-specific requirements that would prevent cross-licensing (e.g., law), so it could simplify the ability of many people to work without added costs.

  2. Submitted by Jane Pattinson on 03/07/2012 - 10:19 am.

    Licensing

    Typically licensing has been set reactively, not proactively. That means that there have been enough incidents of harm to the public by a particular field or profession to draw legislative attention. The example in the story is appalling. This woman came to the US from a thirld world country where the hygiene standards are low. She, nor anyone else, should not come to the US and expect to not have training and examination in the field in which she plans to work. It is a public health and safety issue. As far as Mrs Obama and Mrs Biden proposing that licensing requirements should be set aside for military spouses as they move from state to state —For a couple of bright women that is a pretty dumb idea. Who will hire people and risk lawsuits when there is no documentaion and certification that employees are competent to do the work at the level of expertise required and expected. If they train to the highest level they do not need to retrain—Typically, most fields that require licensing have provisions for testing for those coming in from elsewhere, or, in some instances, states have reciprosity.

  3. Submitted by Steve Timmer on 03/07/2012 - 11:19 am.

    Here’s what Lee McGrath is really up to

    This is how the proposed bill would work. Let’s say you wanted to pull a few teeth — just for the neighbors and a few friends; nothing big — and some bureaucrat comes in and says, “You can’t do that; it’s practicing dentistry.”

    Whereupon, you say, “Ha! That seems burdensome to me. I’m really good with a pliers; I practiced on the dog; prove to me this ‘practice of dentistry’ stuff is really necessary.”

    And believe it or not, under the statute the state would have to prove it each and every time that some yahoo decided to become a shade tree dentist. It would be true of any profession or occupation licensed by the state — or any political subdivision thereof.

    The practice of medicine (I’m really good with a penknife and my old woodburning set; I ought to be able to remove warts and small skin cancers); the practice of law (I go an “A” in debate); accounting, building contractors, electricians, plumbers, cosmetologists, barbers, and any other licensed activity would be subject to the same rule of “least restrictiveness.”

    Anybody wishing to challenge a licensing requirement — even if not the object of an enforcement action — would be able to do so, and each and every time, it would be the licensor’s burden to prove the health and safety necessity of the requirement. No matter how many times the licensor won, a litigant could still make the licensor prove the necessity of the rule the next case.

    This bill turns the law on its head. The simple cost alone of defending every licensing regulation in each case staggers the imagination. And of course, that’s the idea. Regulators will run out of money and will just give up.

    And it is not as though you can’t presently challenge a license or any other regulation, for that matter. But you bear the burden of proving why the rule is unconstitutional or is contrary to statute, or that the statute or ordinance itself was beyond the power of the body to enact or adopt. And if you win, it binds the governing body against everybody else.

    That is how administrative law has worked since, well, administrative law began.

    Under the bill, merely because the governing body won once, that doesn’t mean each and every person coming before it can’t make the same argument (because the new person was not a litigant to the earlier decision and is not bound by it), requiring that the same experts come in to court and explain the same thing, over and over.

    There’s one other serious — nay, fatal — defect in the bill I haven’t even mentioned yet: it violates the separation of powers under the Minnesota Constitution. If legislation is made within the scope of authority of the Legislature, you can’t have a law that subsequently derogates or assigns that authority to a court. It is a denial of the democratic process.

    It is astonishing that a group of legislators would hate the body they sit in so much that they would cheerfully give their legislative authority away, to a bunch of judges, and turning them into activist judges, to boot. Pitiful.

  4. Submitted by Michael Fleming on 03/07/2012 - 12:19 pm.

    General Support, but Need to Protect other Means for Redress

    I generally agree with the notion posed by the reductions in licensing, although there are a certain limited number professions where the heavy-hand of the state should be maintained (ones where the professional could cause serious damage and where the consumer is truly unable to see enough to judge for him/herself, or ones where there is a particular regulatory privilege, such as right to write a prescription or a right to confidentiality privilege). Those exemptions are necessary, but in the end they should be relatively few. Overall, the proponents of reducing licensing requirements have the right idea.

    My concern is that if we put it to the consumer to otherwise judge for him/herself (which is effectively where this is leading), that is usually accompanied by a right of that consumer to, after a bad result has occurred, to seek compensation from the professional to make good on the consumer’s losses. Without that sword of possible liability to keep the professional on his/her toes, all of the consumer’s judging will be of little use (since we rarely know what happened to us until AFTER it’s already happened, and then all the licensing or pre-buy diligence is moot). So, we can’t accompany this drive to reduce oversight by licensing by, at the same time, undermining our rights to go after people who have harmed us. I submit that without one *or* the other we’re left totally unable to protect ourselves. Yet, the zeal of tort reformers continues unabated.

  5. Submitted by James Hamilton on 03/07/2012 - 01:45 pm.

    How else do we stop dangerous practitioners?

    One of the primary values of licensing is the ability to stop an individual from practicing a particular profession or trade if he or she fails to maintain appropriate standards of care and comply with whatever regulations may apply. So, I put it to the authors of the bill and those supporting its passage: how are we going to put a dangerous or unethical practitioner out of business if we can’t pull a license?

    Some might suggest that the market, including legal liabilities, will do it. As Mr. Fleming notes, there are on-going efforts to reduce liability exposure in a number of areas. Moreover, the legal process is long and costly, more often than not resulting in a negotiated settlement and no clear findings of fault or the lack thereof. It can take decades, and mutliple victims, for this system to reveal a hazardous, unqualified or unethical practitioner. Insurance costs, a market force which can restrain operations, are meaningless unless the operator is required to be insured at some significant level and appropropriate coverage is carried. How one enforces insurance requirements without a licensing component is unclear to me.

    This is not to suggest that all areas in which licensing is currently required should be maintained. There may be some or many in which a one-time certification by a legitimate entity can replace a license. But here, too, there are problems. Too many professional and trade organizations are primarily marketing tools, with minimal if any membership requirements.

    It may well be that licensing is the most efficient manner of regulation for many occupations, even if it is not the least costly.

  6. Submitted by Mike Schumann on 03/07/2012 - 01:51 pm.

    Licensing

    My wife and I own Traditions Classic Home Furnishings, a mid to upper end home furnishings boutique with stores in St. Louis Park, St. Paul, and Naples, FL. Over the last 25 years we have developed a very loyal following and are one of the top interior design resources in both the Twin Cities and SW Florida.

    All of our employees, as well as the two of us, came into this business with a passion for design, but no formal training. Luckily, in MN this has not been an issue, as Interior Design is not currently a licensed occupation.

    On the other hand, Florida licenses Interior Designers. In order to be authorized to take the licensing exam in Florida, you need either a 2 or 4 year degree in Interior Design, plus 3 years of work experience under the direction of a licensed Interior Designer or Architect. There are no provisions for someone with 25+ years of experience running a leading design firm in the country from avoiding these prerequisites. The only saving grace is a recent FL Federal Court decision limiting the power of the state to regulate unlicensed Interior Designers working on residential projects.

    This has nothing to do with protecting the public or life safety issues. This is all about limiting the opportunities of young people, who have a flair for design, from getting into the business without years of indentured servitude in low paying internships, not to mention tens of thousands of dollars in tuition and student loans.

    I have no problem with licensing professions that can effect the life or safety of customers or the public. Short of that, people should be entitled to practice whatever profession or occupation that interests them.

    • Submitted by Rachel Kahler on 03/07/2012 - 02:14 pm.

      Good example

      I can’t, for the life of me, believe that an interior designer should have to be licensed. Unless you are contributing to the structural integrity (or lack thereof) of the room/building you are designing (not to be confused with architectural design), I can’t see what the problem is with practicing without being licensed. It is akin to licensing artists. Quite frankly, if you have dissatisfied customers, it is a very specific problem to a single business, not an industry-wide disaster.

  7. Submitted by Michael Fleming on 03/07/2012 - 02:13 pm.

    Hamilton’s point on post-loss liability is a good one

    He is right. Liability suits on the individual level are slow, expensive, subject to risk of non-justified wins, and all else he suggests. And, in that way, it’s a bad answer to how an individual can avoid the market consequences of a non-licensed system.

    I’d merely suggest that a robust tort system still has value on a macro-level. Much like Public Health is not really concerned with any one individual’s results so much as how it impacts us all as a whole (e.g., do we decrease mortality rate in the whole community), the tort system has SOME (not perfect, but SOME) value to control the market as a whole (by increasing the seller’s risk of engaging in non-beneficial behavior). I still—call me an optimist—feel like that risk motivates the behavior of a number of people (not all, but the vast majority).

    We both seem to agree that the hard part is finding the balance of any of these elements to use in creating a system that provides maximum benefit to those who are the governed. For instance, here, some licensing, some tort rights, some government regulation. You can’t depend on any one, nor can you toss any one aside as suspect from the get go. They each have their good and bad aspects, but put together in a good balance you can hedge against the bad parts while maximizing the general utility of the system.

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