Not all states are embracing reforms to their existing occupational licensing laws. Those that are, are helping their respective economies.
March 6, 2019
By: Bobby Casey, Managing Director GWP
By and large, our lives don’t involve the government that much. Most of our plans and activities have nothing to do with it. Day-to-day interactions are voluntary and unencumbered.
Where the government does get involved, they make it count. And it hurts. It hurts not just individuals, it hurts the economy!
Time and again occupational licensing has proven to be a net loss in every way, not moving the needle an inch toward a safer marketplace.
Occupational licensing is the front line obstacle for most entrepreneurs. Something as simple as eyebrow weaving, hair braiding, and even flower arrangement has become an ordeal in several states.
Most states have some sort of cottage law that allows people to bake out of their homes, but they cap their gross sales. Every cost you incur as a cottage food artisan, needs to be covered by your sales. But a cap on gross sales means you can’t afford to invest much because your profits will shrink.
For example: let’s say you have a cupcake business in California. They have a gross sales cap of $50,000 per year. The average cupcake costs $0.50 to make in ingredients. You also need:
- Paper wrappers to bake them in
- Bags or boxes to package them in when you sell them
- Labels (by law label are required on every item you sell)
- Gas to get to a farmers’ market
- Booth cost of a farmers’ market
- Perhaps a website
- Fliers or business cards
- A merchant account
- Spoilage, waste, and utilities
For the sake of argument, let’s say this adds another $1 per cupcake in costs. It costs $18 to make a dozen cupcakes, but you also would like to turn a profit, so you charge $36.
You can sell 1,389 dozen per year, which means you can only make $25,000 per year. That doesn’t include taxes. Gross sales of $50,000 amounts to around $20,000 per year in take-home profits.
Capping gross sales also means there’s NO incentive to invest in the business because every investment you make digs into profits. How are you supposed to get competitive or grow?
At last, the political winds are shifting! States are having the long-overdue conversation about cutting, reforming, or eliminating occupational licensing.
This is a nearly $200 BILLION annual imposition on the US economy with millions of jobs never realized. And while protectionism and cronyism have their short-term perks, in the long run, denying people work or criminalizing their efforts is a bad call.
“[L]icensing laws cost Ohio 68,000 jobs and $6 billion in economic activity annually.“
Governor John Kasich has demanded a three-tiered evaluation of occupational licensing:
- Is the license necessary?
- Do the standardized requirements for the license make sense?
- Do the licenses inhibited economic growth, reduced efficiency, or increased the cost of government?
Also, people with criminal histories could be eligible for professional licenses. Rather than saying no convict can get a license, the nature of the business and crime would be evaluated. This could go a long way in reducing recidivism.
The newly elected governor of Idaho, Brad Little, is looking to keep the licensing regulations relevant with sunrise and sunset requirements. By putting an end date on a bill, it forces the legislature to reevaluate it to see if it still makes sense down the line. Further, he took a page out of Trump’s book:
“He said he will issue another executive order requiring state agencies to revoke two regulations for every new regulation they want to implement.”
He is also looking to reduce fees and bureaucracies in the state.
While this shouldn’t be monumental, Arizona is the first state to recognize occupational licenses from other states… regardless of military status. A few states will make exceptions for military families who relocate to their state, but not for civilian families.
Governor Doug Ducey said, “There’s dignity in all work. And we know that whether you make your living as a plumber, a barber, a nurse or anything else, you don’t lose your skills simply because you moved here.”
Arizona is a leading destination for “economic refugees” from other states such as California. They made it a lot easier to choose Arizona.
A report in 2018 out of the Wisconsin Department of Safety and Professional Services found that occupational licenses put an undue hardship on people of low and middle income. The analysis recommended 28 occupational licenses be eliminated entirely. This includes licenses for services such as interior design and dance.
The Lone Star State could be looking at a major reduction in occupational licenses. Like Wisconsin, a commission was tasked with analyzing the license and regulatory regime of the state.
They found licensure cost the state 140,000 jobs and $431.5 million in reduced economic output. It therefore recommended the following:
“Of the 58 so-called occupational licensing laws included in the report, all of which carry criminal penalties, the commission has recommended that almost every one of them be either reduced to a civil penalty or repealed outright.”
Holdouts such as Florida and Nevada are still there.
Governor Ron DeSantis seemed excited to get some reforms underway, calling it one of his top priorities for 2019. It fizzled out in the State Senate where it was “temporarily postponed indefinitely”.
“The bills sought to loosen or eliminate occupational license requirements imposed by 23 professional licensing boards on nearly 30 percent of Florida’s workforce – the percentage of state-regulated workers in the South and four-highest in the nation.”
Seems lobbyists got in the way.
Nevada is in desperate need of a regulatory overhaul, as do many states. Nevada has a low cost of living, and a moderate tax regime. By shrinking the barriers to entry for entrepreneurs, there’s no reason why this couldn’t be a great state to start a business.
“A 2017 study by the Institute for Justice (IJ) examined occupational licensure laws for 102 lower-income occupations and found that Nevada requires a license for 75 of them. Only three other states — Louisiana, Washington, and California — license more low-income professions. The state also licenses such rarely licensed professions as interior designer, sign language interpreter, and animal trainer.”
While politicians continue to campaign on the plight of the poor, their actions speak louder than words. An overwhelming number of state level legislators refuse to embrace this direction in policy. Republicans in Florida are equally reluctant as Democrats in Nevada.
Cronyism is partially to blame. These large industry lobbies get their claws in, and start screaming about “public safety” and things unravel from there.
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