License to Kill: How Occupational Licensing Stifles the Economy

Imagine a world where you need government permission to braid hair, paint walls, or even arrange flowers. This isn’t a dystopian novel—it’s the reality for millions of American workers trapped by excessive occupational licensing laws.

Take the state of Michigan for example. In the 1950s, only 5% of Michigan workers needed a license to perform their jobs. Today, that figure has ballooned to nearly 30% of the workforce. This trend is not just limited to specialized fields but extends to 178 occupations in the state. If you want to be a manicurist apprentice or a hair braiding teacher, you need the corresponding government stamped license.

These licenses, some of which cost over $4,000, have produced a predictably unfortunate result. The Mackinac Center for Public Policy estimates that Michigan’s licensing laws result in up to 125,000 fewer jobs and cost the state economy over $10 billion annually. Michigan suffers from unnecessary barriers to entry so the government can accrue licensing fees.

While some argue that licensing protects consumers, research indicates that licensing laws can increase consumer prices by up to 30%. This price inflation stems from various factors, including the passing on of licensing costs to consumers and reduced competition in licensed fields. The burden of a licensing system extends to taxpayers as well. Administering and enforcing licensing regulations across 180 occupations costs Michigan alone hundreds of millions of dollars in taxpayer money.

Extensive occupational licensing also hampers worker’s locational mobility. The House Regulatory Reform Committee estimates that stringent occupational licensing reduces geographic mobility by as much as 7%. This lack of reciprocity can prevent skilled workers from switching states, depriving the potential area of valuable talent and expertise. 

Occupational licensing also has a disproportionate impact on vulnerable populations. For example, a study by the Institute for Justice found that the average license for lower-income occupations in Michigan requires $242 in fees, 255 days of education and experience, and two exams. For single mothers seeking to improve their economic situation, these barriers are often insurmountable.

And yet according to the Archbridge Institute, Michigan has less occupational licensing requirements than the average U.S. state. Nationally, occupational licensing reduces employment growth by about 20% in licensed positions. This translates to millions of jobs lost across the country. Additionally, licensing requirements increase consumer costs by an estimated 3% to 16% for various services, including childcare, dental care, and optometry.

Occupational licensing also exacerbates income inequality. While it may raise wages for licensed professionals, it makes it more difficult for unlicensed workers to earn a living. The effects are particularly harsh on minorities and disadvantaged groups. For instance, licensing of barbers reduces the probability of a black individual working as a barber by 17.3%. In total, licensing decreases the labor supply of Black men in licensed occupations by up to 19% and Black women by up to 22%. These statistics underscore the far-reaching consequences of occupational licensing, extending beyond simple economic metrics to issues of social equity and opportunity.

Part of this disparity is due to reduced social mobility. A study by the Brookings Institution found that states with more burdensome licensing laws have lower rates of economic mobility. This means that individuals born into lower-income families in these states have a harder time moving up the economic ladder. The National Bureau of Economic Research echoes this sentiment, reporting that higher licensing requirements are associated with an 8% monthly decrease in social mobility.

When so many occupations, the source of livelihood for millions of Americans, are subject to such strict restraints, crippling economic consequences follow. While in some fields, some certification is necessary, the excessive fees and time requirements for many of the nation’s licenses do far more harm than good. The increased consumer safety from an extra 20 hours of required hair braiding practice is not worth a hundred thousand jobs and billions in losses.

Politicians should begin by both reducing the number of occupations requiring licenses and establishing less stringent requirements for the remaining licensed fields. Through this change, our nation will take a step toward economic and social prosperity for all of its citizens, instead of furthering a pattern of inadequate policy making.