Opinion

Opinion: On occupational licensing, CT can do better

University of Maine Chancellor Dannel P. Malloy. In 2017, then-Gov. Malloy signed a bill to repeal several smaller licensing requirements, such as those for swimming pool maintenance workers and builders. University of Maine Chancellor Dannel P. Malloy. In 2017, then-Gov. Malloy signed a bill to repeal several smaller licensing requirements, such as those for swimming pool maintenance workers and builders. Photo: Tyler Sizemore / Hearst Connecticut Media Photo: Tyler Sizemore / Hearst Connecticut Media Image 1 of / 1 Caption Close Opinion: On occupational licensing, CT can do better 1 / 1 Back to Gallery

New year, new taxes. On Jan. 1, many of the $340 million of tax increases in the budget Gov. Lamont signed last summer took effect. Now, the sales tax applies to dry cleaning services, safety apparel and parking. This comes on the heels of October’s sales tax increase on prepared meals and drinks.

Connecticut’s fiscal problems are real, and, though frustrating for consumers, these tax hikes can help close the gap. But one regulatory policy in particular is slowing the state’s economic growth — and costing Connecticut hundreds of millions of dollars a year in revenue.

Occupational licensing regulations require a government-issued license for someone to work in a specific profession. Of course, those are needed in highly specialized fields like medicine, but for much of the 25 percent of the U.S. workforce that’s required to have them, they’re in place for no clear reason. Some states, for instance, require licenses for professions like upholsterers, funeral attendants, florists, manicurists and bartenders. And Connecticut is the only state to license home entertainment installers and forest workers.

Proponents usually justify these licenses on the grounds of public safety, but the economic research has found that these regulations don't make customers or workers safer or improve service quality. Instead, these licenses mostly just serve as a barrier to entry. To get a license, applicants often have to take hundreds, sometimes thousands of hours of classes. That’s not all — they also need additional training, licensing board exams and fees sometimes in excess of $1,000 to state governments. Does someone really require 900 hours of technical education to install a stereo system?

The clear winners in this scenario are those who already have licenses. They face less competition, so they also get more money. But that comes at the expense of poorer workers who can’t afford — in terms of cost and time — to go through the licensing process. Consumers also feel the consequences, as the reduced competition means they have to pay higher prices. Again, the poor lose out. Higher prices disproportionately hurt them.

Some state and local governments support occupational licensing because they raise money from the fees. However, on net, licensing actually costs governments money. Barriers to entry mean that lower-income people can’t enter more productive jobs or earn higher wages, which means higher unemployment and slower economic growth. According to a 2018 study from University of Minnesota economist Morris Kleiner, licensing costs the state of Connecticut about 48,000 full-time jobs, and shrinks the state economy by $6.3 billion.

A smaller economy means less tax revenue. State and local governments raised about $127 million from occupational licensing fees in Connecticut in 2017. However, in my recent study with the Pioneer Institute, I found that the economic costs of licensing reduce state tax revenue by almost $796 million dollars a year. On net, that’s about $669 million a year — almost twice the size of the governor’s tax increases.

To its credit, Connecticut has made some steps in the right direction already. In 2017, then-Gov. Dannel Malloy signed a bill to repeal several smaller licensing requirements, such as those for swimming pool maintenance workers and builders. And according to the state's Office of Fiscal Analysis, repealing these regulations brought a slight fiscal benefit to the state.

But Connecticut could do better. Deliberately reviewing individual licenses could be a bigger change, but an even bolder step would be passing a version of Arizona’s Right to Earn a Living Act. Under this law, new ordinances or laws would need a demonstrated relevance to public health and safety before going into action. Additionally, applying the act retroactively would lead to automatic review of all existing licenses, to see if they actually do serve public health and safety, and would open an avenue for someone to challenge the validity of a licensing requirement in court.

These reforms will not threaten public health, but they will give lower-income state residents better economic opportunities and higher-paying jobs. At the same time, by increasing economic growth, they’ll help put more money in government coffers and the statehouse back in the black.

Alex Muresianu is a Consumer Freedom Fellow at Young Voices , a former Akin Fellow at the Pioneer Institute, and the author of “The Public Finance Case for Occupational Licensing Reform,” a new paper from Pioneer.