Another Impediment To Work--Licensing!

A license to work: Why occupational licensing is killing the American dream

By Edward Timmons

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Although the national unemployment rate is below 5 percent, policymakers continue to grapple with how to assist low-wage workers attain the American dream.

In 2014, Seattle was one of the first cities to pass an ordinance to raise the city’s minimum wage to $15 an hour by 2021. In the first phase of the regulatory change, which took effect in April of 2015, the minimum wage was raised from $9.47 to $11 an hour — an increase of more than 16 percent.

Yet, while the road to increasing the Emerald City’s minimum wage was more than likely paved with admirable intentions, such proposals often end up hurting the very populations they are intended to help.

And unfortunately, the city of Seattle is not alone.

Policymakers in several other states have also indicated support for increasing the minimum wage, leading many economists and hardworking Americans alike to wonder if this is the most efficient approach to improving the lives of workers. Economic theory suggests that employers may be forced to either reduce employment or cut hours as a result of having to pay workers higher wages. A recent study by researchers at the University of Washington confirms this hypothesis.

The researchers compiled evidence signaling that the increase in the minimum wage did little to help Seattle’s underserved workers. “Seattle’s low wage workers would have experienced almost equally positive trends if the minimum wage had not increased,” reads the report. Given these conclusions, it is highly unlikely that altering the minimum wage is the best way to help people out of poverty. Instead, proponents of increasing the minimum wage should consider re-examining state and local occupational licensing laws to determine whether such laws truly serve the public interest or simply aim to reduce market competition at the expense of consumers and job seekers.

According to the most recent White House report, 30.5 percent of workers in Washington state are licensed, which is nearly five percentage points higher than the national average. Notable think tanks, such as the Institute for Justice (IJ), have also taken a particular interest in the subject of occupational licensing, recognizing that burdensome laws can prevent upward mobility for lower-income workers and aspiring entrepreneurs. 

In its study “License to Work,” IJ notes that Washington is one of only eight states that require travel agents to be licensed, forcing aspiring agents to pay a fee of $202 before they can rightfully enter the job market. Washington also requires aspiring massage therapists to pay $280 in fees and successfully complete two licensing exams prior to employment.

Sadly, these are just two examples from among a plethora of others.

Prospective low-wage workers in Seattle and throughout Washington state may be discouraged from entering the workforce at all as a result of these barriers to employment. In addition, the prices of both massage therapy and travel agent services may be higher for consumers in Washington. Supporters of occupational licensing laws argue that the practice improves the quality of services delivered to consumers, though research provides limited evidence to support this claim.

Pivoting the focus away from the minimum wage debate and instead focusing on identifying burdensome occupational licensing laws might yield a higher probability of improving the lives of low-wage workers—both in Seattle and nationwide.

Our nation was founded on the principles of liberty and freedom, while encouraging entrepreneurship and efficiency. We can no longer afford to have our citizens believe that burdensome occupational licensing requirements and the minimum wage are the most they can hope for.

Edward Timmons is an associate professor of economics and the director of the Center for the Study of Occupational Regulation at Saint Francis University.