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How Occupational Licensing Inhibits Economic Opportunity

Executive Summary

Occupational licensing is the practice of requiring workers to obtain government permission to work in certain professions. Most often, getting a license entails completing an approved educational program, passing an exam, and paying a fee. Advocates of occupational licensing frame their arguments around public safety, arguing that these restrictions ensure adequate competency and reduce fraud. Far more often, however, occupational licensing laws’ main consequence is restricting the ability of Americans, particularly low- or moderate- income workers, to enter the labor market.

Unlike today, licensing has not always played such a significant role in the American labor market. In the 1950s, fewer than five percent of U.S. workers were required to have a state-issued license to work.2 But by 2015, this number had risen to nearly 30 percent.3 At the state level, where the majority of licensing requirements are found, there are over one thousand distinct occupations licensed, with still more licensed at the federal and municipal levels.4 While this number includes occupations that one might traditionally expect to be licensed, such as lawyers, doctors, and accountants, it also includes occupations that pose much less of a physical or financial risk to the public, such as interior designers, animal massage therapists, residential painters, pet sitters, and florists.

Though it receives little attention, occupational licensing is the largest issue facing the American labor force today. The number of licensed workers is far higher than the number of workers who earn the federal minimum wage or who are union members. The growth of occupational licensing has coincided with the decline of union membership; union membership stood at 10.7 percent in 2016, a stark decline from the peak of 35.4 percent in 1945.5 And despite a great deal of policy and media focus on the minimum wage, only 2.7 percent of Americans are paid at or below the federal minimum wage.6 In addition to its scope, occupational licensing is also problematic because of its negative impact on economic opportunity.

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