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Deregulating Occupations: Is Michigan Leading the Way?

Wednesday, May 30, 2012

Michigan has undertaken an important step in reviewing the necessity of licensing and regulating certain occupations.

Shortly after taking office in 2011, Michigan Governor Rick Snyder established by executive order the Office of Regulatory Reinvention (ORR) as part of his policy to jumpstart the state’s ailing economy. The ORR is charged with encouraging “a regulatory environment and regulatory processes that are fair, efficient, transparent, and conducive to business growth and job creation,” as well as responsible for “the elimination or amendment of duplicative, obsolete, unnecessary, or duly restrictive rules [that] will lead to the creation of more businesses and jobs.”

Last month, ORR issued a report to Governor Snyder that contained 63 recommendations for improving the state’s occupational licensing regulations. These included the complete deregulation of 18 occupations, representing 17.3 percent of occupations regulated by state government. The ORR also recommended the elimination of 5 additional licensing provisions, as well as the elimination of 9 occupational boards and further exploration of eliminating 11 more boards.

In the 1950s, only 4.5 percent of the U.S. workforce needed a government license to work; by the first decade of this century, that figure had risen to over 20 percent.

“We found that there were at least 18 occupations that did not require regulation,” said Shelly Edgerton, deputy director of the Department of Licensing and Regulatory Affairs, which houses ORR. Some of these occupations recommended for deregulation include “Auctioneers,” “Dieticians & Nutritionists,” “Forester,” “Immigration Clerical Assistant,” “Interior Designer,” “Professional Employer Organizations,” and “Vehicle Protection Product Warrantor.” Boards recommended for elimination include Auctioneers, Dietetics & Nutrition, Occupational Therapy, Speech Language Pathology, the Osteopathic Medicine Advisory Board, and the Ski Area Safety Board. Now it’s up to Michigan’s legislature to act on these recommendations and deregulate those occupations.

Excessive and poorly conceived licensing regulation comes with high costs. A 2007 Reason Foundation study by Adam B. Summers found that Michigan, with 116 licensed occupations, was the sixth most heavily occupationally regulated state in the nation.

Summers reported that more than 1,000 occupations are regulated at the state level, with more regulated at the federal and municipal levels of government. The total cost of licensing regulations in the United States is estimated at between $34.8 billion and $41.7 billion annually. In the 1950s, only 4.5 percent of the U.S. workforce needed a government license to work; by the first decade of this century, that figure had risen to over 20 percent. According to Summers:

Governments should conduct periodic occupational licensing reviews – either through a special commission or an auditing agency – to ensure that regulations pass the “laugh test” (Do we really need to license interior designers and casket sellers?)… Licensing laws should be subject to removal if (a) few other jurisdictions have seen the need to license the occupation, (b) too few practitioners are licensed to financially justify the existence of the licensing board, or (c) there is a history of little or no enforcement activity, suggesting that either the licensing board is not doing its job or there is no cause for action, and thus the board is unnecessary.

In May 2012, the Institute for Justice, a libertarian think tank, released License to Work: A National Study of Burdens from Occupational Licensing, which focuses on 102 lower-to-moderate income occupations and measures the burdens licensing imposes on aspiring workers. The study found that most of the 102 occupations are practiced somewhere without government permission and apparently without widespread harm. Only 15 are licensed in 40 states or more, and on average, the 102 occupations are licensed in just 22 states. The report also found that the difficulty of entering an occupation often has little to do with health or safety risks. Emergency medical technologists (EMTs), who hold lives in their hands, average 33 days of training and two examinations across the United States, while cosmetologists require, on average, 372 days of training before full licensure. Of the 102 occupations studied, the most difficult to enter is interior designer, a “harmless” occupation licensed in only three states and Washington, D.C. The study concludes:

Finding a job or creating new jobs should not require a permission slip from the government. As millions of Americans struggle to find productive work, one of the quickest ways legislators can help is to simply get out of the way: reduce or remove needless licensure burdens.

State regulation of occupations is supposed to protect the public from “unqualified” practitioners. However, there is empirical evidence that compulsory licensing doesn’t improve service quality and public safety, and may actually reduce them.

While occupational licensing regulation is proposed in the “public interest,” oftentimes the true motivation is the rent-seeking behavior of special interests. Licensing regulations establish barriers to entry from potential competitors, thus allowing existing licensed practitioners to maintain prices (and profits) higher than they would be able to in a competitive market.

Michigan has undertaken an important step in reviewing the necessity of licensing and regulating certain of its occupations. Other states with a glut of occupational licensing should follow suit.

Thomas A. Hemphill is associate professor of strategy, innovation, and public policy at the University of Michigan-Flint’s School of Management.

FURTHER READING: Hemphill also writes “The EU’s Emissions Trading System: Trouble in Paradise” and “Just How Dangerous Is Talking and Driving?” Arnold Kling explains “Why We Need Principles-Based Regulation.” Jon Entine contributes “Over-Regulation Fever at the White House.” David Shaywitz authors “Road not Taken: The Unrecognized Harm of Excessive Regulation.” David Schoenbrod says “No Regulation Without Representation.”

Image by Rob Green / Bergman Group

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