The U.S. labor market is very resilient despite self-inflicted headwinds in the form of persistently high oil prices and silly tariffs. The latest reading from the Bureau of Labor Statistics notes that unemployment remains at 4.1 percent.
If we dive into state-specific data, we see a dichotomy emerging. States like South Dakota, Vermont, and Hawaii have unemployment rates well below three percent. On the other end of the spectrum, states like California, Oregon, and Washington have an unemployment rate well above five percent.
What can explain these differences? Tax policy and the overall climate for business are obvious contributors. The mix of a state’s industries is also a key factor.
Something that slips under the radar time and time again, however, is the burden of occupational licensing requirements.
Occupational licensing requirements are state laws that make it illegal to begin working a job before meeting state-mandated entry requirements. These requirements include minimum levels of education and training, passing exams, and paying fees to the state.
It is critically important to separate the concept of licensing from regulation itself. Licensing is not the same thing as regulation. Instead, licensing is the most costly and onerous way to regulate.
Chefs and waitstaff are not subject to occupational licensing in the U.S. Neither are auto mechanics. More carefully targeted regulations like random inspections and private certification can provide consumers with peace of mind.
The market is also the king of regulators. Providers of poor service will not be in business for very long.
Some licensing requirements can be justified on public safety grounds. Licensing doctors, dentists, and nurses makes at least some sense.
But what about interior designers? Or lactation consultants? Or drama therapists, for that matter? It should be impossible to justify licensing these professions on public safety grounds with a straight face.
The fraction of workers licensed in the U.S. has grown fourfold over the last 75 years–from just five percent of the workforce to well over 20 percent.
In the latest Archbridge Institute State Occupational Licensing Index, we ranked Oregon as having the most burdensome occupational licensing requirements nationally. Washington ranks at 11th and California comes in at 23rd.
On the other end of the spectrum, states with lower unemployment rates often have lower licensing burdens. Hawaii, Vermont, and South Dakota come in at 36th, 39th, and 43rd nationally.
The gap between states with respect to occupational licensing burden is meaningful. Oregon licenses 180 of the 246 occupations that we examine. Vermont and South Dakota license only 145 and 141, respectively.
While ranked 23rd, California licenses 161 occupations out of the 246 we studied – five more than the national average.
California is one of just three states nationally that licenses farm labor contractors. California is also among the minority of states to license cemetery brokers and salespersons. The risk of harm to consumers from incompetent practice seems very low for all of these, and most states function just fine without these unnecessary licensing restrictions.
Another index of licensing that focuses on low-income occupations by the Institute for Justice scores California as among the most burdensome in the country. If we take a deeper dive into fees and experience requirements for licenses, California creates unique barriers, particularly for its residential and commercial contractors.
If states like California are looking for a meaningful and measurable way to boost the strength of the labor market, occupational licensing reform is a costless way to increase entrepreneurship and boost employment.
Ohio is one shining example. The state has made tremendous strides in reforming occupational licensing and eliminating other needless regulations. Unemployment in Ohio is now well below the national average at 3.4 percent.
Further, states should look to eliminate needless barriers to licensed workers moving across state lines. Kansas is a shining example here. In just four years, Kansas has seen an inflow of more than 79,000 licensed workers as a result of licensing reform. Not surprisingly, the unemployment rate in Kansas also sits below the national average.
Critics will argue that licensing reform compromises public safety. But research clearly shows that this is not the case. Licensing boards protect their own, not consumers. It is a racket, plain and simple, and a costly one at that.
As state policymakers consider priorities for 2027 and beyond, occupational licensing reform should be near the top of the list. Meaningful reform can go a long way to improving prosperity and unlocking opportunity for all Americans.
Edward Timmons is the vice president of policy at the Archbridge Institute.