Free Enterprise

The Case for Licensing Reform to Combat Economic Protectionism

This article was authored by research intern Mitchell McCabe.

A study from the Institute for Justice found that occupational licensing laws impact roughly one in four workers in the United States, with some estimates suggesting that these laws cost the economy between $100 and $200 billion annually. These laws have severe consequences, such as stifled innovation, reduced consumer choice, higher prices, and a less competitive economic landscape.

The negative consequences of these laws are further exacerbated for low-income individuals and minorities, as they often lack the resources to navigate the complex and costly licensure process.

But what about occupational licensing leads to these consequences? The answer, economic protectionism. 

Economic protectionism is found in poorly constructed occupational licensing laws and is what allows industries and professional groups to shield themselves from competition via a state’s regulatory system. This process establishes barriers to entry for potential licensees, reducing competition, and favoring established businesses and professionals over new entrants.

States can take several actions to reform their licensure process and reduce the negative impacts of economic protectionism. For example, states can streamline the licensure process by eliminating redundancies, simplifying application procedures, and lowering fees, especially for low-income individuals and minorities. Additionally, states can explore alternative forms of regulation that favor the free market, such as certification or registration, which provide consumer protection without creating unnecessary barriers to entry. Such policies ultimately work to foster a more competitive and inclusive economic environment for citizens. 

Luckily for Utahns, Utah has been at the forefront of licensing reform efforts in recent years, with several innovative approaches aimed at reducing unnecessary barriers to entry and promoting economic growth. 

For example, Utah has passed legislation that created the Office of Professional Licensure Review (OPLR). This office will evaluate all requirements for licensure to ensure they are current and do not present an undue burden for practicing in a regulated field. Specifically, OPLR will be tasked with examining all new applications requesting that an occupation be regulated and review all existing licenses every ten years.

By pursuing licensing reform at the state and local level, policymakers can remove these negative consequences and promote a more competitive, innovative, and prosperous economy.