Occupational licensing contributes to Texas’ labor shortages

Commentary at McAllen Monitor.

​Texas has job openings; Texas has workers willing and eager to fill them. Where’s the disconnect that has resulted in labor shortages in a number of fields? It could be occupational licensing.

In many ways, the Texas model of limited government is a blueprint for D.C. and other states. The Federal Reserve Bank of Dallas’ latest reading of Texas’ economy is very positive. Personal income growth in the second quarter of 2018 was 6 percent — the highest in the nation. And the U.S. Bureau of Labor Statistics recently noted that Texas’ annualized private sector job creation rate of 3.9 percent is about double the national average of 2 percent.

Yet there are labor shortages in several fields. There are not enough qualified workers to fill the jobs available. If this problem persists, the ability of Texas to sustain its economic momentum will be restrained.

One qualification, which often presents an unnecessary, artificial barrier to employment and prosperity, is occupational licensing.

These laws say that willing workers must get a permission slip from state bureaucrats in Austin. To obtain the permission slip, aspiring workers need to pass exams, pay fees, complete minimum levels of education and training, or meet other entry requirements.

In 2015, more than 24 percent of workers in Texas had a license. That makes sense for family doctors and surgeons. But hairdressers, auctioneers and (in some states) interior designers? Not so much.

We highlight the problems presented by overly burdensome occupational licensing in Texas in a new report published by the Texas Public Policy Foundation.

According to the Institute for Justice’s ranking of occupational licensing for states, Texas is right around the middle of the pack — ranked 21st in the burden presented by licenses for low-income occupations. And unfortunately, Texas has mostly been moving in the wrong direction.
Between 1993 and 2012, Texas added licensing requirements for 22 low-income occupations. Data from the Texas Department of Licensing and Regulation indicate a 460 percent increase in the number of licenses issued by the department, far surpassing the state’s population growth of 37.5 percent in that period.

By making it harder for aspiring workers in Texas to enter the job market, licenses artificially inflate wages — and this means higher prices for the services provided. National estimates suggest that licensing inflates wages of professionals by about 15 percent. And this means consumers pay higher prices.

In addition, individuals looking to enter a new field may be prevented from achieving their dreams.

Proponents of these licenses claim that it protects the public’s health, safety, or welfare. But the risk of harm presented in these professions varies dramatically. Bad haircuts aren’t fatal. Neither is poor auctioneering or interior decorating.

It’s important to note that occupational licensing is often at best used as a signaling device for quality service, but it’s not the only way to regulate a profession. Proponents claim there’s only a binary choice between occupational licensing and no regulation at all, but there are many other ways to protect consumers.

Private certification can be used to signal to consumers who provide quality service; auto mechanics use this method quite effectively. The government can perform random safety inspections, as it does in the food services industry. The market can also regulate and provide information to consumers about bad actors via online ratings services like Yelp.

Licensing also serves to constrain consumer choice in the market for health care.

In Texas, patients have a difficult time seeing nurse practitioners without significant interference from physicians. Consumers should be granted the ability to obtain quality care from highly trained medical professionals like nurse practitioners for basic health care, especially in areas with doctor shortages.

The Texas model has achieved some amazing results over the years. We should not let occupational licensing get in the way of Texans achieving their hopes and dreams.

Edward Timmons, Ph.D., is director of the Knee Center for the Study of Occupational Regulation at St. Francis University; and Vance Ginn, Ph.D., is director of the Center for Economic Prosperity and senior economist at the Texas Public Policy Foundation.