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Reforming America’s System of Federalized Occupational Licensure

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Ian Hutcheson
October 23, 2021

The sometimes-peculiar nature of the American federal system has been highlighted by the COVID-19 pandemic. An obscure adjustment to public policy that allowed the healthcare system to respond was the granting of emergency licensing waivers that permitted nurses licensed in one state to practice in another in which they were not licensed. These waivers essentially mirrored the conditions which already existed among the states participating in the Nurse Licensure Compact (NLC),whose members have diminished inter-state licensing barriers in the profession.

State-limited licenses are sensible for some professions with significant legal and practical differences across jurisdictions. However, this system of federalized occupational licensure is redundant for certain professions, burdensome on workers and reduces the labor market’s ability to respond to new demands. The practices of endorsement and reciprocity between states should be explored to address these flaws and help reform America’s regulation of certain occupations through licensing.

License Labyrinth

The steady incline in the rate of licensed professions in the United States has prompted questions about the necessity of requiring one in four workers to secure a license before they can practice their vocation. The accepted justification for occupational licensure is that it protects the well-being of consumers and ensures quality in goods and services. While the case for mandatory licensure is compelling in certain fields like healthcare, it is decidedly less so for cosmetologists or barbers.

Assuming that occupational licensure is desirable for a substantial share of the American workforce, the necessity of requiring workers to earn separate licenses for each state they practice in would appear burdensome in many instances. Such a federalized system of occupational licensure has been criticized for inhibiting the mobility of workers; constraining labor force participation; and limiting competition, which ultimately translates into higher prices for consumers.

Regulated Mobility

An obvious criticism of federalized occupational licensure is its adverse impact on worker mobility. Relocation is made burdensome for licensees looking to practice in a state they are not yet licensed for. Such barriers could be expected to harm historically mobile family types, such as military families. Indeed, military spouses suffer from disproportionately high unemployment rates and the Department of Defense has studied occupational licensure reform as a strategy to combat this.

While licensure regulations can negatively impact workers who do relocate to certain states, it may also stop others from relocating at all. The extent to which state-limited licensure prevents worker mobility in this way is not clear, but some macroeconomic research reveals that states with higher shares of licensed workers perform poorly on multiple job mobility metrics. Though states have compelling reasons to regulate certain professions through licensure, the costs this imposes on economic self-determination and workforce mobility have real and understudied consequences.

Permitted Fragmentation

In reviewing the list of state-regulated occupational licenses, it is apparent that the need for licensing some professions is not immediately convincing. For example, the argument for mandating that an auctioneer be licensed before they can preside over public sales is not obvious. The 26 states that do not license auctioneers would seem to have found that justification lacking, including Michigan, which repealed its auctioneer’s license requirement in 2014.

Where the regulation of certain occupational licenses becomes truly problematic is when it is fragmented into a federalized system across jurisdictions that do not recognize one another’s credentials. The immobilizing effect this has on the labor market’s ability to allocate human capital across jurisdictions may go relatively unnoticed for many professions, but it could have severe consequences if local conditions create a demand for certain services that cannot be met.

Seeking Synchronicity

The tendency of federalized occupational licensure towards inefficiency and inconvenience has been recognized by many reformers, who have instituted policies of endorsement and reciprocity between states to create a more accessible and certain regulatory environment. The former refers to the acceptance of other states’ licenses, and the latter to jointly recognized licensing requirements.

The Nursing Licensure Compact was an early pioneer in licensing innovation. NLC states grant both single-state licenses that can be endorsed by other members, and multi-state licenses that are automatically accepted among Compact jurisdictions. While the impact on worker mobility from such agreements is unclear, they at least permit greater movement, even if they do not always induce it. A more synchronized system of occupational licensing also allows governments greater flexibility in responding to new demands, made apparent by the aforementioned emergency licensing waivers granted during the coronavirus crisis that are essentially a form of accelerated endorsement.

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A constructive consequence of the COVID-19 pandemic is how it has forced us to rethink the ways in which we work. Governments must similarly reevaluate the restrictions they place on workers and whether regulations align with the trend towards increased worker mobility and the need to allocate human capital to unforeseen demands. The federalized system of occupational licensure in the United States is a clear barrier inhibiting such an alignment, but practices such as endorsement and reciprocity can help to synchronize workforce regulation and put the country on more agile footing.

Author: Ian Hutcheson, MPAis a Management & Budget Specialist for the City of Oklahoma City and the President of the ASPA Oklahoma Chapter. He is a 2018 graduate of the Master of Public Administration program at the University of Kansas. Ian’s professional areas of interest include city management, finance and budget, economics, and organizational change. Contact: [email protected]. Twitter: @ihutch01

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