North Carolina earlier this month provided a big win for worker freedom, a move that will create a more accommodating labor market for our state and potentially provide some relief for certain consumers.
House Bill 763, signed into law on July 3, will recognize occupational licenses from a handful of neighboring states for several dozen occupations, eliminating a hurdle to work for people relocating to the Tarheel State.
One of the most stringent and pervasive labor market regulations, occupational licensing is a very costly and restrictive regulation that makes it illegal for an aspiring worker to enter a profession before meeting minimum entry requirements set by law. These minimum entry requirements often include achieving certain levels of education and training, passing exams, paying fees, and meeting a variety of other requirements.
These requirements create barriers to entry for people simply wanting to earn a living, and they present especially difficult hurdles for low-income workers. A study released earlier this year by the John Locke Foundation and authored by the Knee Regulatory Research Center at West Virginia University examined the consequences of occupational licensing, with a focus on their impact in North Carolina.
Nationally, roughly 22% of all workers are licensed, which is a share of workers 20 times the rate of those working for the minimum wage and more than double the proportion of workers belonging to a union, according to the study. While debates about labor unions and minimum wage laws garner far more headlines and attention, occupational licensing has a significantly broader impact on the labor market.
At 18.9%, North Carolina ranks 27th nationally in terms of the proportion of licensed workers.
The Knee Center study notes several impacts from occupational licensing requirements. The authors estimate that licensing requirements for a profession can reduce the number of workers in that profession by 17% to 27%.
“The relative shortage of licensed professionals results in less convenient services for consumers,” the study notes. “Importantly, they also increase the prices that consumers pay for those same services.”
Fewer workers means fewer consumer options and less competition, resulting in higher prices (by an estimated 3% to 16%) for the affected services, according to the report.
Even the main justification for occupational licensing – improved and safer provision of services – fails to bear fruit. “Most of the research on the effects of occupational licensing on quality does not find evidence that it improves the quality of services,” the study’s authors note.
In terms of the number of occupations requiring licensing, North Carolina ranks 11th highest in the nation, making it illegal for someone without a license to practice 186 of the 284 occupations examined in the study.
The economic impact of such an extensive licensing regime is not inconsequential. The Institute for Justice estimates that occupational licensing costs the state more than 42,500 jobs and $112 million annually in lost output.
North Carolina’s recently passed legislation takes an important step in unraveling our state’s costly occupational licensing mandates.
Specifically, the bill compels North Carolina to recognize occupational licenses from Georgia, South Carolina, Tennessee, Virginia and West Virginia for many occupations. This enables workers moving from other states to bypass costly licensing barriers and seamlessly begin work. Several occupations are exempted from this recognition, such as health care practitioners, certified accountants, and motor vehicle dealers.
Such recognition makes North Carolina more inviting for people willing to move here to work and serve consumers. The study found that having separate state licensing requirements “reduces interstate migration by 7%,” making labor less mobile and in turn our labor market less dynamic.
While this bill is a critical step in the right direction for worker freedom in North Carolina, there’s still plenty more work to be done. North Carolina legislators should consider a “Right to Earn a Living Act” to strike a major blow to barriers to work. Such a bill would, as described in the study, place the burden on the state “to demonstrate the necessity of licensing, and it assumes that individuals have a right to work without the impediment of regulation.”
Under this law, licensing boards would need to prove that their licenses are demonstrably necessary and narrowly tailored to a specific public risk.
Furthermore, for those licensing requirements that would remain, North Carolina could expand its interstate licensing recognition to all other states and also reduce licensing requirements to the least burdensome level among other states.
Tearing down these barriers to work is not only the right thing to do for workers, it would also benefit consumers with more choices and lower prices. North Carolina legislators have a chance to lead on this issue. They should take it.
