Frequently Searched

Of Lemonade and Licensing: The Bitter Truth

August 7, 2015

The police chief ordered the girls to shut down the stand. While these types of laws might protect the public from the extremely remote and unlikely dangers of children’s lemonade stands, customers are probably not overly-concerned with the health risks associated with unlicensed lemonade vendors.

While an extreme example, these types of laws and regulations too often do little to protect public health & safety while doing immense damage to economic enterprise. Fortunately, the value of these types of rules is receiving scrutiny in a new Obama administration study.

The White House study on occupational licensing is calling for states to limit occupational licensing to public health and safety concerns.

In the construction industry, for example, 28 states license who can paint according to a 2012 study from the Institute for Justice. In New Mexico, for example, painting is a building specialty requiring two years of work experience and cost of about $250 in application, testing and licensing fees. Meanwhile, twenty-two states do not require an occupational licenses for commercial/general painters.

Not only does this landmark study provide much-needed attention to the issue of how government regulations can choke small business formation and expansion, it provides guidance to state policymakers on how they can better meet the needs of both public health & safety and economic growth.

The landmark study was compiled by the Council of Economic Advisors, the Treasury Department, and the Department of Labor. The report found that “more than one-quarter of U.S. workers now require a license to do their jobs, with most of these workers licensed by the states.”

The White House report repeatedly cites and relies on a recent Goldwater Institute study, “Bootstraps Tangled in Red Tape: How State Occupational Licensing Hinders Low-Income Entrepreneurship” to make its case for state-level rollback of occupational licensing. Using entrepreneurship data from the Institute for Justice and the Kauffman Foundation, former Goldwater Institute Senior Economist and current senior research fellow at the Center for the Study of Economic Liberty at Arizona State University, Stephen Slivinski found that “The states that license more than 50 percent of the low-income occupations had an average entrepreneurship rate that was 11 percent lower than the average for all states, and that states that licensed less than a third had an average entrepreneurship rate that was about 11 percent higher.”

The White House study should serve as a clarion call to state-level policymakers. It is time to carefully re-examine the utility of the government-created obstacles that increase the barriers to entry to entrepreneurship; especially those that disproportionately discourage entrepreneurship in low-income sectors of the economy. In particular, occupational licensing should be evaluated and removed in those instances where there is no compelling public safety interest.

If states are to be competitive, innovative, and vibrant over the next century, we must recognize the growing importance entrepreneurship in labor markets and must be willing to remove the tax and regulatory barriers that undermine small business formation and expansion.

Policymakers have an important opportunity to unleash this untapped and too often stifled entrepreneurial potential. They should seize it.

 

 

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