Presidential candidates of both parties are sounding the alarm about stagnant economic growth and lack of opportunity – two key reasons for income inequality. But they are offering very few practical solutions.
One such proposal is to reduce occupational licensing requirements. It sounds obscure, but when the Obama administration and a free-market think tank are on the same page, we should sit up and pay attention.
There are also efforts on the state level. Wednesday, the Little Hoover Commission will hold a public hearing in Culver City on occupational licensing.
Nearly 30 percent of all jobs require a state-granted occupational license, up from 5 percent in the 1950s, according to the Brookings Institution. Valid reasons exist for licensing doctors, electricians, lawyers and teachers. But for interior designers, locksmiths and upholsterers?
Excessive licensing is a drag on the economy, and the cost is notably high in California. Economists argue that licensing drives down employment by 0.5 percent to 1 percent, which means a loss of as many as 78,000 California jobs.
The good news is that there is agreement across the political spectrum about how to fix the problem. Last month, the chairman of the President’s Council of Economic Advisers told lawmakers that they can protect consumers from fraud without constraining job creation. Also, the Kauffman Foundation pointed out the negative impact of excessive licensing on entrepreneurs.
So why haven’t reform attempts gone anywhere? It often comes down to opposition at the state level. When legislators propose reforms, the push-back is intense.
For instance, when the Florida legislature sought in 2011 to end the licensing of interior designers, the move failed after their lobbyists warned of fires from flammable carpets and bacteria outbreaks from porous countertops. Deregulation would contribute to nearly 90,000 deaths each year, they argued. Seriously? The real reason likely had more to do with campaign contributions.
What can be done to advance practical policy solutions? A good first step is for states to recognize out-of-state occupational licenses for members of the military, first responders and their spouses. Fair treatment for this group will open up a larger conversation.
Second, states should abide by the same standards as private employers, who since a 1971 U.S. Supreme Court ruling have had to demonstrate that job requirements relate to the specific position. The same kind of review should apply for occupational licensing because excessive educational qualifications can discriminate.
Third, spot examples of effective policy and replicate them. In Minnesota, licensing requirements expire and are subject to periodic review. The presumption is that less exclusionary methods, such as registration, should be used unless there is a compelling case for licensing.
We hope whoever wins in November will consider this issue a top priority. There is a political consensus about the problem. Can we find a path forward that overcomes resistance from special interests?
David Beier is a member of the Little Hoover Commission and managing director with Bay City Capital, a life science venture capital firm in San Francisco, and can be contacted at email@example.com. Andrew Sullivan is a senior vice president of public affairs for Hill+Knowlton Strategies and can be contacted at andrewsullivan@HKstrategies.com.