Morris Kleiner and Evgeny Vorotnikov are the authors of “At What Cost? State and National Estimates of the Economic Costs of Occupational Licensing,” a new report from the Institute for Justice.
Our new study, conducted in partnership with the Institute for Justice, provides fresh cause for concern. Using one of the largest data sets available, we estimated not only the percentage of workers licensed at the national and state levels but also, for the first time, licensing’s economic costs for the country as a whole and for most states — including Maryland.
We found that almost 1 in 5 Maryland workers now has an occupational license. For perspective, in the 1950s, only about 1 in 20 American workers was licensed. All that licensing leads to a loss of nearly 24,000 jobs in the licensed sector each year in Maryland.
The losses do not stop there. By shutting people out of work, licensing laws restrict competition in licensed occupations. With fewer rivals, licensed workers can charge more for their services than they could in a more competitive market — and without necessarily providing concomitant increases in service safety or quality. Licensing costs Maryland’s consumers and economy nearly $80 million annually just in “dead weight loss,” which is when people respond to higher prices from licensing by buying less of a licensed service.
Yet, even this figure does not fully capture how much licensing costs the Maryland economy. That is because licensing also misallocates resources or directs them away from their most highly valued uses. For example, dead-weight loss does not account for the cost of a person who was safely practicing an occupation in one state having to retrain before being allowed to practice in another. Nor does it account for the cost of a person being denied a license solely because of a long past or potentially irrelevant criminal record. When these and other “misallocation costs” are taken into account, the cost of licensing rises to $3.3 billion annually.
Some of Maryland’s specific licenses also point toward misallocation costs. For example, Maryland has the country’s fifth-most burdensome requirements for residential painting contractors. Twenty states and the District of Columbia require less experience than Maryland’s two years, while 23 states do not license the occupation at all. This suggests the Old Line State’s heavy burdens for residential painting contractors simply are not necessary to protect the public. Such superfluous requirements also flow into licensing’s multibillion-dollar toll.
Fortunately, Maryland is well positioned to become a leader on occupational licensing reform. In 2017, it was one of 11 states selected to participate in a consortium tasked with developing licensing reform policies and strategies. Funded by the Labor Department, the consortium is a collaboration between the National Conference of State Legislatures, the Council of State Governments and the National Governors Association Center for Best Practices.
As part of that effort, Maryland lawmakers can and should start easing licensing burdens. For all existing and proposed licensing schemes, legislators should require hard evidence that some form of regulation is needed to protect the public from substantial, systemic harms. If regulation is deemed necessary, lawmakers should pivot to determining the least restrictive means of addressing those harms.
For example, the District, Pennsylvania and Washington state consider simple registration to be sufficient to protect consumers from potential harms from the residential painting contractor occupation. Utah recently did away with hefty experience and exam requirements similar to Maryland’s.
Repealing licenses and, if necessary, replacing them with less restrictive (and less costly) alternatives can open up economic opportunities for workers. We hope reform-minded lawmakers in Annapolis will use our new findings about the high costs of licensing to bolster the case for freeing Marylanders from unnecessary licensing red tape.
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