Portability of Occupational Licenses?

About 25-30% of all US workers are in a job that requires an occupational license; for comparison, 10.7% of US wage and salary workers are in a union. The usual justification given for occupational licenses is that they are needed to protect the health and safety of the public. But economists going all the way back to Adam Smith in 1776 (who focused on the issue of how overly long apprenticeships limit labor market competition in Book I, Chapter 10 of the Wealth of Nations) have harbored the suspicion that they also might serve to reduce competition in the labor market and thus help those who have the license achieve higher pay.

Occupational licenses are typically granted at the state level, which offers an interesting insight into these issues. If high quality service is the main reason for occupational licensing, then it should be pretty easy for someone who is qualified in one state to work in another state. If blocking labor market competition is the main reason for occupational licensing, then it will be pretty hard for someone who is qualified in one state to work in another state. In practice, it's often pretty hard to move between states. The Federal Trade Commission examines this issue in "Policy Perspectives: Options to Enhance Occupational License Portability" (September 2018).

The FTC cites the substantial economic literature which makes the point that "while licensing may increase the wages of licensees at the expense of higher prices paid by consumers, studies show that it does not improve quality." On the issue of those with an occupation license working in another state, the FTC notes (footnotes omitted):

"It is particularly hard to justify licensing-related barriers to entry when a practitioner qualified and licensed by one state wishes to provide identical services in another state. Because licensing rules are almost always state-based, it can be difficult for a qualified person licensed by one state to become licensed in another state. For some occupations, state licensing standards vary considerably, so applicants licensed in one state may need additional education or training to qualify to practice in another state. Even when a profession’s underlying standards are national and state licensing requirements are similar throughout the United States, the process of obtaining a license in another state is often slow, burdensome, and costly. Indeed, a recent study shows that occupational licensure requirements may substantially limit the interstate mobility of licensed workers, especially for occupations with state-specific licensing requirements.

"State-based licensing requirements are particularly burdensome for licensees who provide services in more than one state, and thus need multistate licensing. They are also especially hard on military families, because trailing spouses often follow service members who are required to move across state lines, and therefore must bear the financial and administrative burdens of applying for a license in each new state of residence. The need to obtain a license in another state can sometimes even lead licensees to exit their occupations when they must move to another state.

"Multistate licensing requirements can also limit consumers’ access to services. For example, licensure requirements can prevent qualified service providers from addressing time-sensitive emergency situations across a nearby state line or block qualified health care providers from providing telehealth services to consumers in rural and underserved locations."

Some professions in some states have addressed this issue. Some states have joined interstate compacts so that those licenses in one state would be able to work i other states in the compact: for example, such agreements exist for nursing, physicians, physical therapists, and others. Another approach is to write a model law or rule for occupational licenses, so that qualifying in one state will be the same as qualifying in another state, an approach followed by accountants, pharmacists, and some others. Related to these options, some states have provisions that allow mutual recognition of certain occupational licenses from the other state, or expedited licenses in one state for those who already have a similar license in another state.

But substantial issues remain. The canaries in the mineshaft here are the working spouses of those in the military. About 35% of them work in jobs that require occupational licenses, and they are often shifting between US states every 2-4 years. Teachers, as one common example, often find it hard to shift their licensing between states. The US economy would benefit from greater mobility and fewer workers feeling stuck in place. 

Postscript: For those who find themselves prone to dismiss anything that smacks of deregulation, especially if it arrives from a Trump/Republican administration, it's perhaps worth noting that the FTC has been studying this issue and expressing concerns going back at least to 1990. Indeed, economists in the Obama administration raised essentially the same concerns about occupational licensing and the importance of portability across state lines. For a flavor of the earlier discussion, see "Occupational Licensing and its Discontents" (August 5, 2015). 

A version of this article first appeared on Conversable Economist.