Replace Mandatory State Licensing with Voluntary Certification, Study Says

A new study from North Carolina’s John Locke Foundation suggests a market-oriented alternative to state professional licensing. Read the press release below:

North Carolina could promote job creation, lower consumer prices, and boost opportunities for low-income families by replacing most of the state’s occupational licensing with voluntary certification. A new John Locke Foundation Spotlight report explains why.

“North Carolina’s aggressive occupational licensing faces considerable concerns about its fairness, efficiency, scope, and more,” said report author Jon Sanders, JLF Director of Regulatory Studies. “A ready answer to these concerns would be to transition most jobs currently under state regulation away from licensure and into private certification.”

Sanders releases his report as the state’s occupational licensing system faces questions on multiple fronts. An occupational license represents government’s official permission for an individual to work in a regulated area of business.

The governor’s efficiency program, the General Assembly’s program evaluation team, and the state auditor have recommended changes to the existing system. Those changes range from improved oversight to consolidation and elimination of existing licensing requirements.

In February, the U.S. Supreme Court ruled that one licensing group, the N.C. State Board of Dental Examiners, violated federal antitrust laws with restrictions on teeth-whitening services.

“The need for reform beckons, and there is a reform that addresses legitimate concerns about licensure while upholding North Carolinians’ self-evident constitutional right to ‘the enjoyment of the fruits of their own labor,’” Sanders said. “That reform is voluntary certification.”

Voluntary certification addresses three distinct problems, Sanders said. “Certification promotes safety and quality by letting customers choose according to their needs and budgets,” he said. “Second, certification promotes economic growth, especially in poor communities, by not pre-emptively pricing poor individuals out of entrepreneurship but letting them compete. Third, certification leads to more affordable services, with prices being kept lower as more businesses are able to compete for customers.”

There is nothing new about private certification, Sanders said. “Market opportunities exist when consumers want to know which members of a service profession are trustworthy — and when the professionals wish to alert potential customers that they can be trusted.”

Sanders cites existing private certification groups that serve more than 300,000 mechanics and more than 4,000 locksmiths. “The certification service and certified professionals work in concert to uphold each other’s reputations,” he said. “The certification service is also better able to adjust quickly to changing service dynamics, discard insufficient standards, and adopt new ones more reflective of the work needs.”

“Their market survival depends upon getting the standards right,” Sanders added. “They are not government outfits that can be removed only with a vote of state lawmakers.”

More than 1,100 professions face state licensing across the 50 states, according to the report. “But only a little over 5 percent of those professions are licensed in every state,” Sanders said. “That means states are in significant disagreement over which services actually need regulation for safety and quality.”

Benefits from government-run occupational licensing are dubious, Sanders said. “State licensure is usually justified as ensuring safety and quality of service work, but research findings cast much doubt on licensure’s actual effectiveness regarding safety and quality.”

One finding is clear from academic research into licensing, Sanders said. “The strongest, most consistent finding in the research literature is this: Licensing yields higher earnings for licensed professionals by keeping competitors out and prices for consumers high.”

Occupational licensing proves especially harmful to the poor, Sanders said. “This harm is both direct and indirect,” he said. “Higher prices on services burden all consumers but affect the poor the most. Costly hurdles to gaining a license keep some would-be practitioners out, especially the poorest.”

Licensing also blocks many low-income people from becoming self-employed entrepreneurs, Sanders added. 

“Research spanning decades has shown that entrepreneurial activity in low-income areas causes a ‘double dividend’ of local job growth and economic growth in areas that need it the most,” he said. “By discouraging that entrepreneurial activity, occupational licensing deals a double blow to low-income communities.” 

Transitioning from government-run occupational licensing to voluntary private certification makes sense for North Carolina, Sanders said. “This move would inject a great amount of freedom and choice into the market for service professionals and into the labor market as well,” he said. “It would pay dividends in terms of job creation as well as help lift low-income individuals and neighborhoods.”

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