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117 views2 pagesEntrepreneurship Policy Digest Occupational Licensing: A Barrier To Entrepreneurship (Updated September 2015)
High rates of new business creation are a sign of a dynamic economy in which the barriers to entrepreneurship are low. As entrepreneurs bring new ideas to market, they spur economic growth and create jobs. In fact, companies less than five years old are the primary source of net new job creation in the United States.
Yet, in certain fields and professions, the path to opening a new business is marked with barriers that can slow or even block entrepreneurs. These barriers often go unnoticed until the entrepreneur runs up against them. Such is the case with one form of government regulation known as licensing, which has the effect of fencing out new entrants while protecting the licensed from competition.
Since colonial times in America, governments have imposed licenses on certain professions and trades in the name of public health or safety. Today, licensing most often originates at the state level, but municipal governments and the federal government also engage in this form of regulation. Over time, the number of licensed professions has grown and expanded to industries that pose little or no threat to public safety. In some states for example, a license is required to become a tour guide, sell caskets, or braid hair.
About 29 percent of jobs require a government-issued license—a dramatic increase from just forty years ago when only 10 percent of workers were licensed. These licensure requirements result in fewer practitioners, who can demand higher wages, while also stifling new business creation and innovation.
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0% found this document useful (0 votes)
117 views2 pagesEntrepreneurship Policy Digest Occupational Licensing: A Barrier To Entrepreneurship (Updated September 2015)
High rates of new business creation are a sign of a dynamic economy in which the barriers to entrepreneurship are low. As entrepreneurs bring new ideas to market, they spur economic growth and create jobs. In fact, companies less than five years old are the primary source of net new job creation in the United States.
Yet, in certain fields and professions, the path to opening a new business is marked with barriers that can slow or even block entrepreneurs. These barriers often go unnoticed until the entrepreneur runs up against them. Such is the case with one form of government regulation known as licensing, which has the effect of fencing out new entrants while protecting the licensed from competition.
Since colonial times in America, governments have imposed licenses on certain professions and trades in the name of public health or safety. Today, licensing most often originates at the state level, but municipal governments and the federal government also engage in this form of regulation. Over time, the number of licensed professions has grown and expanded to industries that pose little or no threat to public safety. In some states for example, a license is required to become a tour guide, sell caskets, or braid hair.
About 29 percent of jobs require a government-issued license—a dramatic increase from just forty years ago when only 10 percent of workers were licensed. These licensure requirements result in fewer practitioners, who can demand higher wages, while also stifling new business creation and innovation.
Uploaded by
The Ewing Marion Kauffman FoundationCopyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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AN EDUCATIONAL POLICY BRIEF FROM THE EWING MARION KAUFFMAN FOUNDATION
DECEMBER 2, 2014
UPDATED SEPTEMBER 16, 2015
OCCUPATIONAL LICENSING: A BARRIER TO ENTREPRENEURSHIP
High rates of new business creation are a sign of a dynamic economy in which the barriers to entrepreneurship are low. As
entrepreneurs bring new ideas to market, they spur economic growth and create jobs. In fact, companies less than five years old are
the primary source of net new job creation in the United States.
Yet, in certain fields and professions, the path to opening a new business is marked with barriers that can slow or even block
entrepreneurs. These barriers often go unnoticed until the entrepreneur runs up against them. Such is the case with one form of
government regulation known as licensing, which has the effect of fencing out new entrants while protecting the licensed from
competition.
Since colonial times in America, governments have imposed licenses on certain professions and trades in the name of public health
or safety. Today, licensing most often originates at the state level. But all levels of government engage in this form of regulation and
ought to care about the labor market inefficiencies that are caused by licensing. Over time, the number of licensed professions has
grown and expanded to industries that pose little or no threat to public safety. In some states for example, a license is required to
become a tour guide, sell caskets, or braid hair.
About 29 percent of jobs require a government-issued licensea dramatic increase from just forty years ago when only 10 percent
of workers were licensed. These licensure requirements result in fewer practitioners, who can demand higher wages, while also stifling
new business creation and innovation.
(continued)
CLEARING THE
HURDLES TO
ATTAIN A LICENSE
To practice in a eld
that requires a license,
applicants must
complete some
combination
of the following:
A minimum
number of years of
education and/or
experience
Pay initial
licensing
fees, which
can exceed
$500
Pass one or
more exams
that conrm
applicant
quality
Be of
good moral
character and
in good legal
standing
Engage in
continuing
education
and pay
renewal fees
to maintain
license
FORMS OF OCCUPATIONAL REGULATION
LESS
Regulation
No Regulation
Registration
Certification
Licensing is one of only several forms of occupational regulation.
Other regulatory options can blunt the negative effects of licensing
while still addressing concerns about public safety.
B esides an outright ban, licensing is the most limiting form of
occupational regulation, where practitioners must meet certain
requirements to practice. Examples: Dentist, Master Plumber
Certification has fewer restrictions than licensing, allowing any
individual to perform the service but recognizing those who have
Licensure
Prohibition
MORE
Regulation
achieved a certain level of experience or education with a state
certificate of competency. Examples: Car Mechanic, Hotel Manager
The least restrictive form of occupational regulation is registration,
which requires professionals in a field only to record their
qualifications with the state or regulatory body. Examples:
Radiologic Technologists, Lobbyist
THE LIMITING EFFECTS OF OCCUPATIONAL LICENSING
Licensing often is justified by claiming that services provided by licensed individuals are of higher quality than those that
are not. However, an analysis of licensed interior designers in one state and certified interior designers in another found
no difference in the number of consumer complaints registered.
L icensing boards can inhibit innovations in training, practice, education, and the delivery of services, preventing the
establishment of such options as low-cost legal clinics and prepaid health plans. Such anti-competitive action not only
prevents entrepreneurs from entering the industry, but it also raises costs for services entrepreneurs and their employees need.
S trict state licensing without a system of mutual recognition in other states restricts the ability of practitioners to move to
markets where their skills would be more valuable. Licensing reciprocity ranges from none to full depending on the profession,
with many states requiring some additional documentation, fees, and/or testing to obtain a license.
O
ccupational licensing requirements can be a hurdle to upward economic mobility. Research shows lower rates of
entrepreneurship in states that license more low-income occupations.
RECONSIDER LICENSING POLICY TO SPUR ENTREPRENEURIAL GROWTH
E xamine the professions that require a license and replace licensing with a less onerous form of regulation where public
health is not seriously threatened.
S tate licensing boards are often composed primarily of licensed members of the occupation. Reform licensing boards to give
greater representation to non-licensed practitioners.
Create public committees to evaluate licensing boards, provide independent analysis of newly proposed licensure
requirements, and make recommendations to lawmakers.
D
ifferences in state licensing requirements can make it difficult for entrepreneurs and workers to find opportunities and jobs,
creating stale labor markets and underemployment. Mutual recognition of other state licenses would improve worker mobility
and, thereby, boost economic dynamism.
FOR MORE INFORMATION
Click on the links for access to the following resources, or contact Jason Wiens at [email protected]:
Read the Kauffman Foundations A License to Grow
E xplore the Kauffman-Thumbtack.com Small Business Friendliness Survey
Read Occupational Licensing: How a New Guild Mentality Thwarts Innovation
See where your state ranks on the Institute for Justices State Profiles
Check out the Growthology blog: Occupational Licensing Reaches the Supreme Court
To sign up to receive subsequent Policy Digests, go to www.kauffman.org/policydigest.
4801 Rockhill Road Kansas City, Missouri 64110
www.kauffman.org
About the Kauffman Foundation The Ewing Marion Kauffman Foundation is a private, nonpartisan foundation that aims to foster economic independence by advancing educational achievement
and entrepreneurial success. For more information, visit www.kauffman.org, and follow the Foundation on www.twitter.com/kauffmanfdn and www.facebook.com/kauffmanfdn.
