1. My two Forbes articles this week covered Chicago, including how the Illinois courts are hindering the city from pension reform; and how a new Taco Bell in Wicker Park will cater to young urban barhoppers.
2. This week, the White House Council of Economic Advisors published a report about the rise of occupational licensing in the U.S. It was a refreshing look by those in power at a lightly-covered issue that harms millions of people. The 77-page paper takes a cursory state-by-state view at the measures required to enter various professions. It found that nearly a quarter of the U.S. workforce now requires a license to do their jobs, a five-fold increase since 1950, and “about two-thirds of this change stems from an increase in the number of professions that require a license.” Meanwhile, the requirements for obtaining licenses have increased in time and costs, with many states requiring years of experience to enter rudimentary professions like landscaping and hair-styling.
This is thought to ensure quality and safety. But the report found that it is often excessive, harming both entrepreneurs and consumers. Occupational licenses harm entrepreneurs by creating large upfront costs to start even modest businesses, which discourages many from doing so (or pushes their operations under the table, a phenomenon I documented last year for the Wall Street Journal). Along with disproportionately impacting the poor, licensing requirements in some states exclude those who have been convicted of any crime, or those who have defaulted on student loans. Occupational licensing also harms immigrants, who are generally more entrepreneurial than natives.
Immigrants must often complete duplicative and costly requirements in order to acquire a U.S. license in their chosen career. In many cases, the training or experience that these immigrants acquired overseas does not count toward fulfilling the relevant licensing requirements. For example, in Illinois, if an engineer earns a degree from most universities abroad, she must submit proof that she worked under a U.S. engineer for four years; other work experience abroad will not suffice.
And this hurts consumers by decreasing competition and raising prices.
The report was part of President Obama’s initiative to review and weed-out counterproductive federal regulations. But because occupational licensing is a state and local thing, the feds can only address it through education efforts, and by offering grant money to reform-minded states. On Monday, when Obama unveils his budget, one anticipated item will be $15 million to study occupational licensing in the 50 states.
I first heard about the CEA report via Matt Yglesias, who called occupational licensing one of the nation’s “most underrated economic problems.” But the real credit for bringing attention to the issue goes to the Institute for Justice, a libertarian think tank that for years has covered occupational licensing’s growth. Here is their 2012 study that is even more comprehensive than the CEA’s (and that probably didn’t cost $15 million to produce), and a summarizing WSJ editorial by the authors.