Uber, AirBnB and Beyond: The Fight over Occupational Licensing

On a visit to Manhattan last month, I spent a cold rainy rush hour fruitlessly trying to hail a cab.  Like many, that experience led me to thank my lucky stars for my Uber account and to curse the old hidebound taxi industry.  It seems like I’m not alone as one of the surprisingly hot policy topics today is the not sexy issue of occupational licensing.  Does the practice of occupational licensing (for hairdressers, caterers, cab drivers and the like) represent an unfair barrier to entry for budding or new entrepreneurs?

Over the past few months, I’ve read a ton of studies on this issue of occupational licensing.  The Kauffman Foundation has been especially prolific with its study “License to Grow” and related materials.   The Progressive Policy Institute similarly refers to these rules as part of a new “guild mentality.”  As these studies note, there has been a huge jump in the number of professions requiring licenses—up from 10 percent in the 1970s to 29 percent today. These licenses help ensure safety and quality, but can also block entry into the licensed fields.  And, while we all might prefer a licensed heart surgeon, we may not demand a licensed florist, hair braider or travel agent.   These barriers to entry help increase costs and block budding entrepreneurs, although more rigorous, long-term studies suggest that the impact of licensing differs greatly by occupation and over time.

While there is a big (and legitimate) push to drop occupational licensing, let’s also recognize that some professional certifications make sense.  In fact, much of our push for technical education, career pathways development, and creation of middle skill jobs is about certifications—providing people with the certifications (and yes, the licenses) that serve as a “seal of approval” and help prepare them for better jobs and better careers.  Moreover, the evidence that occupational licensing has wider community economic effects is somewhat limited.  For example, a recent study from Kentucky looked at the linkages between occupational licensing and local start-up rates.  The researchers found that the use of county occupational license taxes had no connection to county-level business start-up activity.  Instead, the county’s “culture” of entrepreneurship—in government and more generally—had a much bigger effect.

As a business owner and a user of rush hour taxis, I dislike occupational licenses as much as anybody else.  But, as in some many policy debates, it’s important that we look before we leap.  In our rush to block the licensing of hair braiders or teeth whiteners, we need to be sure that we attack these rules with a scalpel, not a battle axe.

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