Occupational Licensing is an important issue for the American economy, and it surfaced in the national political debate through Paul Ryan’s  “discussion draft” plan, “Expanding Opportunity in America”. The draft plan addresses social mobility, poverty, and reforms to America’s welfare state and the criminal justice system.

What is Occupational Licensing?

Occupational Licenses are state and local level regulations that establish a barrier in the practice of a specific trade, or prevents a tradesperson competing with other fields outside their licensed trade (the latter is common in the medical field), normally with the de jure intention of protecting the public. Many fields have mandates for licensed professionals, and the number has been growing rapidly. In the 1950s, only 70 occupations, including 5% of workers, were licensed. By 2008, an average of over 800 occupations, accounting for 29% of all workers, were licensed by each state with one state licensing over 1,100 professions, according to a 2003 report by the Council of State Governments.

This doesn't mean licensing is a new phenomena. Economists Morris Kleiner and Alan Krueger find that the concept has existed at least since Adam Smith in the 18th century. Licensing has also been a theme in health care economics. In 1963, Nobel Laureate Kenneth Arrow discussed barriers to entry for doctors, such as expensive education and licensing requirements. At the time, I thought it would be too dangerous to lower the requirements for medical professionals to work in their field, but the data seem to be against me. Nurses can provide the same quality of care, with some patients actually reporting higher satisfaction than with a doctor, while charging 15% less for their services. Overall it is estimated that regulations on non-physicians in the medical field alone costs US consumers over $100 billion a year.

Certification is a similar process to licensing; however, gaining certification is not a prerequisite for opening a business. For example, you would not be able to open a hair and nail salon in a state that requires a license to operate, but in another state you could decide for yourself if you think that it would benefit your business to get certified to practice your trade. Rand Paul, after disagreeing with the certification board for Ophthalmology, founded his own certification board, the National Board of Ophthalmology in 1999. Somewhat comically, Paul was certified by the NBO with himself as the organization's president, while his wife served as vice-president, and his father-in-law served as secretary before that body was dissolved in 2011.

What did Paul Ryan have to say about Occupational Licensing?

Paul Ryan’s report does not cover the topic in depth, but his report concludes,

Matthew Yglesias of Vox.com notes that Ryan does not propose a remedy to end this problem, but he rather implores state and local governments to take action themselves. Yglesias briefly floats the idea of federal incentives for local governments to lower their license requirements for workers, but does not expand upon this idea. Still, even liberal pundits like NY Mag’s Jonathan Chait have lauded Ryan for discussing this issue at all in his overall plan to tackle economic mobility.

Why is Occupational Licensing growing so quickly?

Why are licensed and certified trades reaching towards 38% of the US workforce, while the number sits at 13% in the United Kingdom? A leading reason is a process that economists and political scientists refer to as “rent seeking”. Incumbent business owners and tradespeople seek to make it more difficult for competitors, especially those of lower income, to challenge them. They lobby their government to pass regulations to require licensing for new businesses to enter an existing market, with the stated goal of public health and safety. Kleiner and Krueger found that licensing laws increase the wages of current workers by 18%, creating a strong incentive for incumbent businesses and workers to lobby against more competitive practices. Meanwhile the increase in prices for goods and services are paid for by consumers. The increase is disproportionately borne by low income communities, as prices rise and firms focus on serving higher income clientele. 

In another study, the pair of economists found an interesting correlation between a decrease in private sector unionization and professional licensing in the economy.

As union membership declines, workers seeking higher wages may be turning to government protectionism. The study finds that unions have a tendency to lift the lowest wages and restrain the highest wages; however, licensing has exacerbated--not relieved--the income inequality of the past decades as higher wages go towards a select few.

Generally, licensing laws have been passed in the nominal interest of protecting the public, yet requiring florists, hairbraiders, interior designers, tour guides, and dozens of other industries to have government licenses to operate has no rational basis and has been ruled unconstitutional in case after case. Many other cases of licensing policy have been the subject of ridicule in the Economist and the New York Times. 

What Progressives could learn from Libertarians about Licensing

While politicians and commentators from the left, right, and center have now begun to challenge these embedded barriers, Libertarians were the first in leading the charge. Thanks to a vigorous distrust of government regulations, a disdain for crony capitalism, and discouragement of barriers to commerce, Libertarians have been leaders on the issue of licensing. Their party platform on poverty and welfare states, “...[O]ccupational licensing laws are particularly damaging to the type of small businesses that may help people work their way out of poverty.”

The Institute for Justice (IJ), a Libertarian law firm, has led the charge on this issue, publicizing and challenging laws that it finds excessive in the free exercise of business. IJ has been instrumental in arguing for court decisions that struck down tour guide regulations in Washington, DC as unconstitutional under the First Amendment. The Fifth Circuit Court struck down regulations requiring that only funeral directors can make caskets in Louisiana, and a federal court ended a requirement that stylists need 2,000 hours of training to braid hair in Utah. 

The Institute for Justice hopes to string these cases together to craft a national right to economic liberty. Although it might sound a little too much like the gospel of Ayn Rand for some, Progressives should support the creation of such a right, so long as it is balanced by the public interest on issues such as public health, the environment, and labor rights. Such a right to economic liberty, if applied regardless of class or influence, could help restrain rent seeking by corporations and reduce the power of money in politics, both of which are necessary if one wants to move towards a more progressive government that serves the best interests of its constituents.

The divergence between Liberal and Libertarians emerges when debating which trades the government should license. Libertarians are skeptical of most, if not all licensing, which is quite understandable considering the government’s track record, where it has over-regulated these trades beyond the point at which the public receives any  benefit.

I would suggest that two questions be asked to determine whether an occupation should require a license or certification. First, does the occupation have a direct impact on public health, the environment, or public safety? Second, does the occupation pose a significant hazard to the health and safety of the worker employed?

When a trade does warrant certification or licensing, states and local governments should seek to implement those policies in a way that balances a competitive market with regulations that are in the best interests of the public, not a politically influential few.

Our members watched the State of the Union last night together. Here are some of their thoughts:

"While I was pleased to hear the announcement of an increase in minimum wage for federally contracted workers through an executive order, President Obama must also put in place limitations on the payrolls of corporate executives, which will hold them accountable for funneling taxpayer money into their own pockets. That sort of change will not come from the corporate-controlled White House, so progressives must shift their focus to the grassroots, bottom-up approach."
--Yasemin Ayarci, Chapter President (@DCyasemin)

"Watching the webcast with the corresponding graphs and diagrams, I was glad to see more substantive policy and slightly less rhetoric than past addresses, but some statements on progressive causes still felt shallow. On education, I was very happy to see the backing of a pre-K expansion, but dismayed at the few new ideas presented on improving college affordability." 
--David Meni, Vice President (@TheDavidMeni)

"Any congressional action this year on issues progressives care about will depend on passage in the Republican-controlled House. Last night’s speech sought important solutions to our upward mobility crisis once popular with conservatives: education reform, job training, infrastructure, and a tax overhaul. Despite many important issues left unmentioned, the solutions proposed to reduce inequality may have the support necessary get through the lower chamber--and a chance at helping alleviate the many structural economic challenges too many Americans face." 
--Zach Komes, Policy Director (@ZachKomes)

"Another beautifully crafted address by President Obama but as a Progressive, I found alarming the lack of any mention about unchallenged rape endemic in the military & his comments on foreign policy were largely anodyne. In fact, the 'Pivot to Asia' was notably absent, unless this is effectively his apparent support for the Trans-Pacific Partnership. On that note, I wonder when Obama will elucidate the opaque contents of the TPP treaty." 
--Francisco Alvarez, Energy and Environment Policy Center Member (@F_J_Alvarez)

"I felt that the President's agenda was too broad and scattered to achieve all, or even most, of the goals that he put forth. If he devoted more effort to a single issue and made that the single crusade of the year, it would have a better chance of actually leading to real, measurable good."
--Matthew Kasturas, Freshman Representative

"While I enjoyed President Obama’s encouraging overall tone about the importance of increasing opportunities for all Americans, I found some of his policy suggestions to be a little vague. For example, although the broad idea of gun control was mentioned, specifics about his gun control platform weren't present, which is disappointing considering the amount of school shootings that have taken place in the last month alone."
--Kinjo Kiema, Freshman Representative (@Captain_Kinj)

"I thought President Obama’s speech had several strong, substantive policy proposals. However, I sincerely hope that his 'All of the Above' energy policy prioritizes renewable sources such as solar and wind, and does not include the Keystone XL Pipeline."
--Eric Wolfert, Outreach Director (@EricWolfert93)

What did you think of the #SOTU? Comment below and let us know your perspective!

YASEMIN AYARCI, CHAPTER PRESIDENT

Do you know who the main employer of low-wage workers is? You might think Walmart or McDonalds, but it’s actually the President of the United States. Through federal contracts, the national government employs nearly 2 million workers, many of which are paid wages too low to support themselves and their families. All eyes are on President Obama’s State of the Union address tonight, where reports say he will announce an executive order to raise the minimum wage for federal contractors to $10.10 an hour by 2016.

The support for this move has been mounting: the vast majority of Americans support the wage raise, as doing so would improve our economy and create jobs. However, the main pressure pushing Obama to sign this order has come from below. Right in his backyard, Pentagon workers took to the streets in a strike to demand higher wages on Wednesday, following the footsteps of workers at the Ronald Reagan Building, Union Station, and Smithsonian museums. Disgruntled with their working conditions and living standards, many of these workers are hoping that their pressure will finally force the President to raise federal labor standards.

Low wages aren't just felt by federally contracted workers, like those in the District; the American taxpayer has been the biggest demographic paying the price. The federal government currently subsidizes various different services from private corporations through federal contracts, and billions of taxpayer dollars go to companies that pay their workers poverty-level wages. The progressive think tank Demos found that these private corporations have transferred nearly $24 billion in federal funds into executive pay, all while their workers are struggling to make a living. Further, as federal contractors continue to ensure that their workforce is not generating enough income to provide for life's basic necessities, employees are forced into taxpayer-funded government aid programs, like food stamps and Medicaid. In effect, taxpayers are paying the price for a system that rewards corporate executives and leaves workers with no other choice than continued poverty.

“Whatever executive authority I have to help the middle class, I’ll use it,” pledged Obama in a speech last July. Although $10.10 is not enough to pull people from poverty wages, President Obama can indeed use his powers to boost millions of workers into better living conditions with a stroke of a pen.

But with the vast majority of both political parties bought by the same corporations and wealthy donors, federally contracted workers should not rely so much on the President and the Democratic establishment for their well-being. Obama has not been short on his critiques of income inequality before, all while stuffing his cabinet with corporatists figures who have contributed to the growing inequality gap. It’s the taxpayers who will pay for an increase in the federal minimum wage; the President has not called on reforms that hold corporatists funneling money out of our government accountable. This is a band-aid move by a corporate controlled administration that has time and time again failed to make Wall Street and the banks pay for their destruction. 

While I support any advances in the conditions of the working class, this movement must not be co-opted by false hope and temporary solutions. As revolutionary activist Nelson Mandela said, "[Poverty] is man-made and it can be overcome and eradicated by the actions of human beings." Mandela knew that South Africa’s majority could never achieve liberation without radical restructuring of wealth and power. Indeed, a rearrangement that puts the needs of workers first is the only solution to income inequality in the United States. Our nation’s federally contracted workers must continue to build their own independent political movement that fully works to address their struggles and the struggles of all workers.

RACHEL WHITBECK, EQUAL JUSTICE DIRECTOR

The revolving door of the American prison system has been well-documented in recent decades: Two thirds of released prisoners will later return to incarceration. This is largely due to the fact that many employers believe that if an ex-convict breaks the law while on the job, the employer might be faced with a lawsuit, and they therefore screen out any applications that checked “yes” on the question of whether the applicant has been convicted of a crime. This makes it difficult for people with criminal backgrounds to find employment, which contributes to the high prevalence of those who eventually find their way back in prison.

Today, 25 percent of adults—65 million nationwide—have criminal records. Those that must indicate their conviction record on a job application cannot indicate the nature of the crime—such as whether the conviction was a felony or a misdemeanor—and many of these ex-convicts have never served time in jail or prison. In fact, in 2011, 48 percent of inmates in American prisons were being held for drug offenses. While many employers screen out applicants with criminal records, Pamela Paulk of Johns Hopkins Health System claims that, in her experience, employees with criminal backgrounds tend to be the most motivated employees with a higher rate of retention than the average worker.

As of mid-2013 10 states and 50 localities have passed “Ban the Box” laws, which prohibit employers from including a checkbox inquiring whether the applicant has a criminal record in an initial screening process. In December 2010, the Council of the District of Columbia passed the Returning Citizens Public Employment Inclusion Act of 2010, which amended the District of Columbia Government Comprehensive Merit Personnel Act of 1978. The 2010 act decrees that the District government is prohibited from inquiring about criminal history on the application form for jobs that are “not covered” (a position for which a background check is not required by law); public employers may only ask an applicant about their criminal history only after the screening process, at which time the applicant is permitted to explain any criminal history. The District does not currently require private employers to undergo the same non-discrimination practices.

On November 5, 2013, NPR News’ Tell Me More program interviewed Madeline Neighly of the National Employment Law Project (NELP). As she states, the issue of inquiring about criminal backgrounds is partly a racial issue: A 2003 Princeton University study found that a white male without a criminal record had, on average, a 34 percent chance of receiving a call after applying for a position, whereas a white male with a criminal record had a 17 percent chance. For a black man, the percentages are drastically altered: He has a 14 percent chance at a callback without a criminal record, and only a five percent chance with one. As it is, 37.8 percent of American inmates were African American in 2011. In the District, if current trends continue, three out of four young African American men are likely to be incarcerated at some time. Neighly emphasizes that convicts who have served their sentences “really need a chance to reintegrate into their community.”

Truth is, many ex-convicts are the products of underprivileged neighborhoods and troubled families. If DC passes a more comprehensive law that 'bans the box' in private sector hiring practices, thousands of residents would find it easier to gain employment to support their own futures and stop the revolving door of American prisons.

The Ban the Box Coalition is currently pushing to pass the Human Rights for Ex-Offenders Act, which aims to end discrimination against people with criminal records by private employers and land lords (except where the crime directly relates to the job or housing offered).

Click here to sign the petition to support this act, and join the GW Roosevelt Institute and the DC community in taking further action to help pass this vital piece of legislation in the District.