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Want to create jobs? Curb occupational licensure

Halloween is over and election night has passed. But for politicians, the scariest days of the year might be the days after the election, when campaign platitudes – “create jobs,” “grow the economy” – must be reworked into actual policy. The truly terrifying part is that many constructive reforms, those that provide new economic opportunities to the powerless, can raise the ire of well-established businesses and interest groups.

That’s why real reform is often spearheaded by people with nothing to lose. Gov. Susana Martinez’s efforts to reform occupational licensure are a case in point. Through a recent executive order, the outgoing governor aims to make it easier for New Mexicans to find meaningful and rewarding work.

An occupational license is a state-created barrier to employment. Those who wish to enter professions that require licenses must first obtain permission. To do that, one must typically pay a fee: over $800 for an aspiring pre-school teacher in New Mexico; take exams: four to be an installer of HVAC ducts; and undergo a certain amount of training: four years to be an athletic trainer.

The share of Americans needing a license to work has increased fourfold in the past 50 years. This includes nearly 26 percent of New Mexicans, according to the Brookings Institution. It’s not just doctors and nurses: The state licenses some 270 or so professions, including barbers, cosmetologists, sign language interpreters and bartenders. Focusing on low- to middle-income occupations, the Institute for Justice, a public interest law firm, ranks New Mexico as the 11th “most broadly and onerously licensed state” in the union.

The ostensible reason for licensure is to protect public health and safety. A well-designed set of tests and training requirements might do that. On the other hand, licensure limits one of the strongest guarantors of good service: competition.

Consider the data.

Among 19 peer-reviewed academic studies, 63 percent find that licensure has no discernible effect on the quality of the work provided. Among the other studies, 21 percent find that licensure reduces quality (compared to the 16 percent that find it enhances it.)

How about prices? Here, economic theory is unambiguous: licensure limits the supply of people providing a service and that raises costs for consumers. It is no surprise, then, that 100 percent of the reviewed studies found this very effect.

The anti-competitive effects of licensure help explain why it has expanded so much in recent years: Industry insiders, who are typically more politically organized than consumer groups, have found the political process a convenient way to make things harder on anyone who seeks to challenge their businesses.

Those who find the burdens of licensure to be the hardest are often disadvantaged in other ways, too. People with criminal records are stymied by licensing rules that bar them from employment, even if they have done their time and seek work that poses little risk to the public. Immigrants are hindered by domestic work requirements or English proficiency rules. Compared with the general population, military spouses are more likely to work in licensed professions and more likely to move, necessitating a new license wherever they go. Four of five studies find that licensure has a disparate impact on ethnic minorities.

The consensus among economists is that the system is burdensome and counterproductive. It was enough to persuade the Obama administration that reform was necessary.

Evidently it has persuaded Gov. Martinez, as well. Her executive order aims to reduce licensing fees to 75 percent of the national average or less, make it easier for those with criminal histories to work, and allow recent transplants to use their out-of-state experience to work in New Mexico.

But there is only so much the governor can do. Many licensing requirements will need an act of the Legislature to be overturned. And to be truly sustainable, the governor will need some help from colleagues on both sides of the political aisle.

Economist Matthew D. Mitchell is an Albuquerque native and Angel Fire resident.

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