Free Market

Occupational Licensing Can Expand Inequality

Occupational licensing has become a popular form of regulation in recent years. Today, more than one in five individuals in the workforce is required to obtain an occupational license.

Governments are often quick to defend the practice of requiring occupational licenses by claiming they provide consumers protection from unqualified workers. 

This claim is too commonly false. Insisting that occupational licensing is essential to ensuring public safety overlooks large variances in licensure. In fact, over a thousand occupations are regulated in at least one state, but less than sixty are regulated in every state. If an occupation is not regulated everywhere, or at least in the majority of states, does it need to carry an associated license? Does it really constitute a public safety risk? Obviously not. If it were, it would be regulated by more states. 

Outside of being arbitrary and not serving its purpose, occupational licensing furthers economic inequality. It does so in a number of ways, some of which are listed below:

  • Licensing tends to push potential workers out of the labor market and limit supply. This increases the prices consumers must pay for goods and services. This increase in prices and the inability to better one’s economic standing may increase inequality. What makes this phenomenon more worrisome is that most people pushed out of the workforce due to lacking a license are already classified as lower-income.
  • For ex-offenders, many face a lifetime ban or additional restrictions in relation to obtaining an occupational license. Such bans and restrictions often create insurmountable barriers for this group. Subsequently, these groups, who are already more prone to being low-income, are left without a clear path to bettering their economic standing. 
  • For the general workforce, licensing requirements often necessitate high up-front costs. In addition to licensing fees, those attempting to obtain a license must meet expensive education requirements. Such requirements may necessitate student loans and time away from work. This debt burden and lost income are often impossible to take on for those already struggling financially.
  • Licensing can act as a form of economic protectionism. Occupational licensing often motivates individuals that have already obtained a license to prevent others from gaining a license. This happens because already-licensed professionals do not want the increased economic competition that comes with more licensed individuals. An example of this occurs with dentists in North Carolina. In this case, already-licensed professionals worked to prevent other professionals from providing teeth whitening despite being qualified to do so. The group of already professionally licensed individuals took such actions in order to maintain the income that is associated with teeth whitening.

While licensing is still useful for protecting consumers, it can also become a tool for protecting those who are already licensed or financially stable. Everyone should have the opportunity to earn a living doing what aligns with their abilities and interests. Occupational licensing must not stand in the way.