There is little doubt that occupational licensing—i.e., requiring the government’s permission in order to pursue a specific occupation or trade—creates negative effects and distortions in the marketplace. Occupational licensing programs are estimated to reduce the rate of job growth by 20 percent and cost the country between $35 billion and $42 billion per year in decreased competition, higher prices for consumers, reduced job growth, and discouragement of innovation and investment. Evidence suggests that licensed occupations that grew in employment by 10% from 1990 to 2000 would have grown by 12% without the license requirement in place. Research from the National Bureau of Economic Research estimates that state-specific licensing examination requirements may reduce interstate mobility by as much as 36%. A 2015 report shows that the growth in occupational licensing can decrease economic mobility, as evidenced by the fact that 31 new licenses created in each state over a 20-year period (1993-2012) correlated with a 6.7 percent decline in absolute mobility over that same period.
In addition to the negative economic effects of occupational licensing, existing research strongly suggests that licensing does little to protect consumers beyond protection that occurs within competitive labor markets. At least 19 studies have assessed the effect that occupational licensing has on quality. Twelve of those studies categorized the effects as neutral, mixed, or unclear. A report issued by the Obama Administration summarizes this argument quite well:
If licensing were able to limit the practice of an occupation to high-quality practitioners, then it would be expected to improve quality and public health and safety. A wide range of studies have examined whether this happens. With the caveats that the literature focuses on specific examples and that quality is difficult to measure, most research does not find that licensing improves quality or public health and safety.
Given the considerable negative effects, the justifications—or lack thereof—for occupational licensing should be given greater scrutiny. More than 500 professional activities require a state-issued license in Texas. Though a good number of those 500 are sublicenses within the same profession (e.g., there are different tiers of plumber licenses and cosmetology licenses), that number is still considerable.
An estimated 1,100 occupations require licensure in at least one state, but fewer than 60 of those occupations require licensure in every state, which suggests that the vast number of licensing laws are unnecessary. Few people could explain why interior designers require a license in three states (and the District of Colombia), but not the other 47, except maybe the interior design lobby in Nevada, Florida, and Louisiana.
One of the best ways to break down barriers to work is to grant licensure in Texas to individuals licensed in other states. Texas has made inroads in reciprocity in recent legislative sessions with bills like Senate Bill 1200 (Campbell, 86R), which grants a three-year license in Texas for spouses of members of the military who are licensed in other states that have licensing requirements that are substantially equivalent to licensing requirements in Texas.
The Texas Department of Licensing and Regulation (TDLR) purports to have broad reciprocity policies with other states, but that is not necessarily the case. Texas has reciprocity agreements, but they are limited in scope. There are two main provisions in statute that provide TDLR with the authority to make occupational licensing in Texas less burdensome.
First, under Section 51.4041(a) of the Occupations Code, TDLR “may adopt alternative means of determining or verifying a person's eligibility for a license issued by the department, including evaluating the person's education, training, experience, and military service.” In using such alternative means, TDLR may consider things like licensure in other states and criminal history.
Second, under Section 51.4041(b), the state “may waive any prerequisite for obtaining a license if the applicant currently holds a similar license issued by another jurisdiction that: (1) has requirements for the license that are substantially equivalent to those of this state[.]”
It is the use of the “substantial equivalence” standard that prevents Texas from having true reciprocity with other states. According to TDLR, the department determines substantial equivalence on a case-by-case basis. In the most heavily licensed fields of cosmetology and barbering, TDLR has recognized a limited number of licenses and states from which to grant reciprocity. Between different professions, sub-licenses within those professions, and different states and territories, reciprocity licensure in Texas is a patchwork quilt.
True reciprocity recognizes that if another jurisdiction has authorized a person for licensure, then Texas should too. A prerequisite for such a policy is the belief that standards and eligibility for licensed professionals are more subjective than the requirements of one’s own state. Given that licensed industries tend to support the protection from competition that state licensure provides, legislators should expect opposition from those groups if another jurisdiction’s requirements are less burdensome than one’s own. Nevertheless, true universal reciprocity would be an incredibly beneficial policy for Texas, its workers, its consumers, and the state’s economy.
Section 51.4041 of the Occupations Code should be revised with a standard for reciprocity that is more automatic and does a better job of recognizing qualified individuals coming to Texas. Model Legislation from the Institute for Justice would provide a strong substitute. The Universal Recognition of Occupational Licenses Act would require the issuance of a license to any applicant who meets the following conditions:
The person holds a valid occupational license or government certification in another state in a lawful occupation with a similar scope of practice, as determined by the board in this state;
The person has held the occupational license or government certification in the other state for at least one year;
The board in the other state required the person to pass an examination, or to meet education, training, or experience standards;
The board in the other state holds the person in good standing;
The person does not have a disqualifying criminal record as determined by the board in this state under state law;
No board in another state revoked the person’s occupational license or government certification because of negligence or intentional misconduct related to the person’s work in the occupation;
The person did not surrender an occupational license or government certification because of negligence or intentional misconduct related to the person’s work in the occupation in another state;
The person does not have a complaint, allegation or investigation pending before a board in another state which relates to unprofessional conduct or an alleged crime. If the person has a complaint, allegation or investigation pending, the board in this state shall not issue or deny an occupational license or government certification to the person until the complaint, allegation or investigation is resolved or the person otherwise meets the criteria for an occupational license or government certification in this state to the satisfaction of the board in this state; and
The person pays all applicable fees in this state.
The model bill contains several other provisions, including a clarification that if the other state issues a government certification, but not a license, then that is satisfactory for requiring this state to issue the license. Should a legislator wish to go further, there are additional provisions in the model bill that would recognize work experience and private certification as qualifications for a license in this state. The full text can be read here.