[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]



 
   OCCUPATIONAL HAZARDS: HOW EXCESSIVE LICENSING HURTS SMALL BUSINESS

=======================================================================

                                HEARING

                               before the

        SUBCOMMITTEE ON ECONOMIC GROWTH, TAX, AND CAPITAL ACCESS

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                           FEBRUARY 27, 2018

                               __________

 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                       
 
  
                               

            Small Business Committee Document Number 115-058
              Available via the GPO Website: www.fdsys.gov
              
              
              
                             _________ 

                  U.S. GOVERNMENT PUBLISHING OFFICE
                   
 28-678                   WASHINGTON : 2018         
 
 
              
              
                   HOUSE COMMITTEE ON SMALL BUSINESS

                      STEVE CHABOT, Ohio, Chairman
                            STEVE KING, Iowa
                      BLAINE LUETKEMEYER, Missouri
                          DAVE BRAT, Virginia
             AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                        STEVE KNIGHT, California
                        TRENT KELLY, Mississippi
                             ROD BLUM, Iowa
                         JAMES COMER, Kentucky
                 JENNIFFER GONZALEZ-COLON, Puerto Rico
                    BRIAN FITZPATRICK, Pennsylvania
                         ROGER MARSHALL, Kansas
                      RALPH NORMAN, South Carolina
                           JOHN CURTIS, Utah
               NYDIA VELAZQUEZ, New York, Ranking Member
                       DWIGHT EVANS, Pennsylvania
                       STEPHANIE MURPHY, Florida
                        AL LAWSON, JR., Florida
                         YVETTE CLARK, New York
                          JUDY CHU, California
                       ALMA ADAMS, North Carolina
                      ADRIANO ESPAILLAT, New York
                        BRAD SCHNEIDER, Illinois
                                 VACANT

               Kevin Fitzpatrick, Majority Staff Director
      Jan Oliver, Majority Deputy Staff Director and Chief Counsel
                     Adam Minehardt, Staff Director
                     
                     
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Dave Brat...................................................     1
Hon. Dwight Evans................................................     2

                               WITNESSES

Mr. C. Jarrett Dieterle, Senior Fellow, R Street Institute, 
  Washington, DC.................................................     3
Mr. Keith Hall, President and Chief Executive Officer, National 
  Association for the Self-Employed, Annapolis Junction, MD......     4
Mr. Frank Zona, Owner, Zona Salons, Norwell, MA, testifying on 
  behalf of the Professional Beauty Association..................     6
Morris Kleiner, Ph.D., Professor, Humphrey School of Public 
  Affairs, University of Minnesota, Minneapolis, MN..............     9

                                APPENDIX

Prepared Statements:
    Hon. Dwight Evans, Ranking Member, Subcommittee on Economic 
      Growth, Tax, and Capital Access, House Committee on Small 
      Business...................................................    19
    Mr. C. Jarrett Dieterle, Senior Fellow, R Street Institute, 
      Washington, DC.............................................    21
    Mr. Keith Hall, President and Chief Executive Officer, 
      National Association for the Self-Employed, Annapolis 
      Junction, MD...............................................    30
    Mr. Frank Zona, Owner, Zona Salons, Norwell, MA, testifying 
      on behalf of the Professional Beauty Association...........    33
    Morris Kleiner, Ph.D., Professor, Humphrey School of Public 
      Affairs, University of Minnesota, Minneapolis, MN..........    36
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.


  OCCUPATIONAL HAZARDS: HOW EXCESSIVE LICENSING HURTS SMALL BUSINESSES

                              ----------                              


                       TUESDAY, FEBRUARY 27, 2018

                  House of Representatives,
               Committee on Small Business,
                   Subcommittee on Economic Growth,
                                   Tax, and Capital Access,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:04 a.m., in 
Room 2360, Rayburn House Office Building, Hon. Dave Brat 
[chairman of the Subcommittee] presiding.
    Present: Representatives Brat, Chabot, Evans, and Clarke.
    Chairman BRAT. Good morning. I apologize for running a few 
minutes late. Then I will call this hearing to order.
    Last year, the Subcommittee held a hearing examining the 
small business labor market. At that hearing, we heard that job 
vacancies across America at an all-time high. We also heard 
that there are millions of Americans sitting on the sidelines 
not looking for work and that undue regulations can cost the 
American economy almost $2 trillion every year.
    With this in mind, the Subcommittee is here today to 
examine a particular set of regulations that may increase 
prices for consumers, increase job vacancies, and hurt small 
businesses: occupational licensing.
    In its simplest definition, occupational licensing requires 
a business or an individual to request permission from the 
government to practice certain occupations. The percentage of 
the workforce that requires an occupational license has 
increased from less than 5 percent in the 1950s to almost 33 
percent today.
    Although some occupations can be dangerous and need 
specialized education, research shows that the amount of 
training required for a license almost never matches the risk 
of an occupation.
    There are also significant inconsistencies between state 
requirements for licensing. For example, while an individual in 
Missouri must only pay a $52 fee and does not need specialized 
training to be an auctioneer, Tennessee requires a $650 fee and 
756 days of specialized training for the same license.
    But one of the most telling statistics about licensing is 
that while there are 1,100 occupations in the United States 
that are licensed in at least 1 State, only 60 require a 
license in all 50 States. This inconsistency hurts workers' 
mobility, and most importantly, small business.
    This morning we will hear from a distinguished panel about 
how the Federal Government can help provide solutions to reduce 
licensing barriers on small businesses. I thank you all for 
being here this morning.
    And I yield to the ranking member for his opening remarks, 
Dwight Evans.
    Mr. EVANS. Thank you, Mr. Chairman, for holding this 
hearing.
    Licensing is a process by which the State requires a worker 
to meet basic standards at the local, State, and Federal level 
before they are able to perform a job. While the origin of 
these limits had noble goals of protecting the safety and well-
being of residents, we can think of instances where the 
requirements have proved burdensome and bear little resemblance 
to the function they were intended.
    It makes sense to license electricians, EMTs, daycare 
workers. The harm done by an unskilled person working in one of 
these professions is much more serious than that of a 
hairdresser and travel guide. Nevertheless, occupational 
licensing persists and has become ever more burdensome across 
the Nation.
    Since the 1950s, the number of licensed workers has jumped 
from just 5 percent of the workforce to nearly 30 percent 
today. That is nearly one in four workers.
    Yet, not every occupation is regulated consistently across 
States. Fewer than 60 occupations are regulated in all 50 
States, showing a substantial difference in which occupation 
States chose to regulate.
    Making the situation worse for workers, many of whom are 
striving to be small business owners, are the fees required, 
the training costs, and time spent studying and testing.
    While the requirements serve a functional purpose, they are 
also a barrier for entrepreneurs to enter an occupation, 
especially for low-income and immigrant workers.
    Today's hearing will give us the opportunity to learn more 
about the genesis of professional licensing and its evolution. 
Though this issue is primarily one for the States to take up, 
it is nevertheless important for us to bring it to the 
forefront because it has an effect and can help guide 
policymakers at the Federal level.
    I yield back the balance of my time. Thank you, Mr. 
Chairman.
    Chairman BRAT. Thank you, Mr. Evans.
    If Committee members have an opening statement prepared, I 
ask they be submitted for the record.
    I would like to take a moment to explain the timing lights 
for you. You will each have 5 minutes to deliver your 
testimony. The light will start out as green. When you have 1 
minute remaining, the light will turn yellow. Finally, at the 
end of your 5 minutes, it will turn red. I ask that you try to 
adhere to that time limit as best you can.
    And with that we will go to introductions.
    Our first witness this morning is Jarrett Dieterle, senior 
fellow at the R Street Institute here in Washington. He also 
serves as the Institute's director of commercial freedom 
policy, focusing on regulatory affairs, occupational licensing, 
and other commercial freedom issues.
    Thank you very much for coming to testify with us today. 
And you may proceed.

STATEMENTS OF MR. C. JARRETT DIETERLE, SENIOR FELLOW, R STREET 
   INSTITUTE; MR. KEITH HALL, PRESIDENT AND CHIEF EXECUTIVE 
OFFICER, NATIONAL ASSOCIATION FOR THE SELF-EMPLOYED, ANNAPOLIS 
JUNCTION, MD; MR. FRANK ZONA, OWNER, ZONA STUDIOS, NORWELL, MA, 
 TESTIFYING ON BEHALF OF THE PROFESSIONAL BEAUTY ASSOCIATION; 
AND MORRIS KLEINER, PH.D., PROFESSOR, HUMPHREY SCHOOL OF PUBLIC 
       AFFAIRS, UNIVERSITY OF MINNESOTA, MINNEAPOLIS, MN

                STATEMENT OF C. JARRETT DIETERLE

    Mr. DIETERLE. Thank you, Chairman Brat, Ranking Member 
Evans, and the Subcommittee, for inviting me to testify today. 
As the Subcommittee may know, and was just mentioned, I direct 
the R Street Institute's work on commercial freedom policy, 
including our study of occupational licensing.
    In many ways, occupational licensing has become one of the 
major labor policy issues facing today's workforce. As 
mentioned, it is currently estimated that one out of four 
Americans needs a government license to work. And the average 
license requires almost a year of educational training, passing 
an exam, and paying over $250 in fees.
    The human cost of excessive licensing is easy to overlook, 
but consider the story of Sandy Meadows, a widow from 
Louisiana, who began arranging flowers, the main skill she knew 
after her husband's death. Louisiana stopped her by denying her 
a floristry license, and according to her attorney, she 
ultimately died alone and in poverty, unable to support 
herself.
    Licensure acts as a barrier to entry for low and middle-
income Americans seeking to enter new professions. It is these 
populations that are least able to overcome the high fees and 
the burdensome educational requirements that many licenses 
mandate. Licensing can also hurt entrepreneurs and small 
businesses trying to enter new markets, all the while 
protecting incumbent business from competition.
    While licensing requirements are often enacted in the name 
of health and safety, they can only rarely be justified on 
those grounds. The sheer variance in licensing standards shows 
this. For example, in States where interior designers are 
licensed, the designers are required to complete 6 years of 
training, whereas the national average for emergency medical 
technicians is a mere 34 days.
    The empirical research available has also notably failed to 
demonstrate a clear connection between more stringent licensing 
and better safety outcomes.
    Importantly, in fields where health and safety concerns are 
legitimate, there are often less burdensome alternatives to 
licensing that can still ensure safety, options like 
inspections or bonding, third-party rating systems.
    In recent years, there has been growing bipartisan 
recognition of occupational licensing, but there has yet to be 
a broad systemic repeal of licensing laws across the country.
    While most licensing, as mentioned, takes place at the 
subnational level, the Federal government can still play a 
role. Today, I will focus on just a few options.
    First, Congress has several legislative options that would 
materially reform occupational licensing. One is the 
Alternatives to Licensing that Lower Obstacles to Work Act, the 
ALLOW Act, which was introduced by Chairman Brat and 
Representative Meadows in the 114th Congress.
    The ALLOW Act would utilize Congress' constitutional 
authority over the District of Columbia to establish a template 
for occupational licensing reform that other States could 
follow.
    It would also tackle the problem of military spouse 
licensure by allowing military spouses who work at Federal 
military installations to be exempt from State licensing 
requirements.
    Another option is the Restoring Board Immunity Act, which 
draws upon recent Supreme Court precedent by offering States a 
safe harbor from Federal antitrust law in exchange for reforms 
to their licensing boards.
    In addition to these bills, licensing in Federal Government 
agencies and contracting should be reviewed. The Federal 
Government workforce and contractors together make up over 5 
percent of our country's workforce, and the Federal Government 
controls the licensing requirements for those positions. 
Congress could order a review, for example, of licensing 
requirements across Federal agencies and contracts and identify 
ones to eliminate.
    And finally, the Federal Trade Commission's licensing work 
could be expanded. The FTC is empowered with research and 
advocacy powers under Federal law, which it has used to file 
advocacy comments and establish its Economic Liberty Task 
Force, which focuses on licensing.
    Congress could enhance the FTC's licensing work by passing 
a specific line item appropriation that directs more money to 
the agency's efforts. Or it could simply direct the FTC to 
spend more of its existing budget on occupational licensing 
work.
    Hopefully, this testimony has successfully highlighted the 
issue of excessive licensure and given Congress and the 
Subcommittee some options to consider.
    I thank the Subcommittee for inviting me to testify here 
today, and I would be happy to answer any questions today or in 
the future. Thank you.
    Chairman BRAT. Thank you, Mr. Dieterle.
    Our next witness is Keith Hall, President and CEO of the 
National Association for the Self-Employed. He is a certified 
public accountant and has provided consulting and tax services 
to small businesses for over 20 years.
    Thank you for testifying this morning, and you may begin. 
Thank you, Mr. Hall.

                    STATEMENT OF KEITH HALL

    Mr. HALL. Thank you. Chairman Brat, Ranking Member Evans, 
thanks again for the chance to be here to represent small 
businesses.
    More specifically, I am here to represent over 30 million 
self-employed and micro-business owners, a big part of our 
economy. I know I am preaching to the choir here, but over 70 
percent of all new jobs, half of all the employees in this 
country, 99 percent of all businesses are small businesses.
    I see it as my job to help those small businesses be more 
successful, and I think that is the goal of this Committee as 
well. I also believe that the primary asset all those small 
businesses have is their time.
    Now, throughout the long debate over tax reform, we only 
asked for two things: We asked that the proposals be simple and 
that they be fair. And as we talk about occupational licensing, 
I think those are the same two parameters to focus on, simple 
and fair.
    In anticipating this meeting today, we surveyed our members 
and we found that 68 percent of our members say that they are 
encumbered in their success because of occupational licensing. 
That is a big number.
    Now, we have each referred to the license to work issue by 
the Institute of Justice that noted the dramatic increase in 
the number of licenses that there are today, and I think that 
is very important. But to me the scary part is how many 
Americans out there chose not to go into a new profession or 
chose not to start a new business just because of the 
licensing. And that is something we can't validate by a survey. 
That is really scary.
    I think the concerns of our members are threefold. One, the 
cost of licensing, both money and time. Two, the inconsistency 
of licensing requirements from State to State and city to city. 
And then three, the impact of those two on low-income and less-
advantaged members of our community. I think those are very 
important.
    I think the first and most important step is increasing 
awareness and support, making this known. The fact that we are 
here today talking about this is a great first step.
    We strongly support the efforts of the FTC and what they 
are working on through the Economic Liberty Task Force. They 
have honed in on a number of specific occupations to promote 
uniformity and reciprocity State to State. I think encouraging 
that States providing uniformity in licensing, allowing the 
transition of workers from State to State, is very critical. I 
think that is particularly important to our veterans and their 
spouses, as Mr. Dieterle kind of referred to.
    I mentioned earlier that I am here representing 30 million 
micro-business owners. That number is expected to be 50 million 
by 2025. To put that in perspective, that is roughly one-third 
of all the tax returns filed in this country will have a 
Schedule C attached to it as part of the income for those 
families.
    One of the reasons for that growth is growth in technology. 
As technology has made the world smaller, small business owners 
find themselves expanding their community, not just in their 
locality, but throughout the State, in many cases multiple 
States, and even throughout the world. I think it is inevitable 
that that trend is going to continue. Expanding that nature of 
our communities shouldn't be something that is restricted by 
occupational licensing.
    Now, I hate pointing out issues without offering some 
solutions, so I think there are three things that we should 
focus on.
    One, we can support and amplify the FTC's Economic Liberty 
Task Force. I think that is through unique funding 
opportunities. I think that is a critical first step.
    Two, formally encourage trade associations and other 
organizations to review their licensing based on removing the 
barrier to entry.
    And then third, find some way to support scholarship 
programs through associations that can provide some financial 
assistance for some of those entries, particularly to the more 
disadvantaged Americans that we have.
    Now, I am not here to ask Congress to enact a new law 
eliminating licensing, because obviously licensing is still 
important. We want to make sure that the professionals we rely 
on provide quality services to us. But I am asking that we as a 
Committee, we as association leaders use our influence to make 
sure that this issue is evaluated based on what it is, which is 
a barrier to economic growth.
    I think a vast majority of small businesses only want two 
things, and that is for it to be simple and for it to be fair. 
And if we can figure out a way to do that, as always, small 
business owners will take care of the rest.
    And, again, I appreciate the opportunity to be here, and 
thanks for holding the hearing today.
    Chairman BRAT. All right. Thank you both very much.
    Mr. Zona, you got the hint here. They all have three 
solutions, so we are looking forward to your three solutions.
    Our third witness is Frank Zona, owner of Zona Salons, 
which has three locations in the Boston metro area. Mr. Zona is 
the third generation of his family to run the business, which 
originally started in Sicily and later moved to the United 
States. He will be testifying this morning on behalf of the 
Professional Beauty Association, where Mr. Zona also sits on 
their government affairs board.
    Thank you very much for being here today, and we look 
forward to your testimony. Thank you.

                    STATEMENT OF FRANK ZONA

    Mr. ZONA. Thank you, Chairman Brat and Ranking Member Evans 
and Subcommittee members.
    I am not sure if my family was actually licensed in Sicily. 
I should just get that on the record right away.
    I want to thank you for the opportunity to participate in 
this hearing regarding excessive occupational licensing on 
small business. Thanks for the work you do as a Committee. As a 
small business owner, it really matters to me. I really do look 
at it as a resource and appreciate it.
    I also appreciate my fellow witnesses here because I am 
still learning, myself, sometimes about the environment I do 
business in. And I appreciate their work.
    I am here, first and foremost, representing myself, a small 
business owner from Massachusetts. It is a third-generation 
salon business, and I employ about 75 people in those three 
locations. We are stuck at 75. I have been stuck at 75 for 
about 3 years, in part due to licensing, which I will explain 
as I go along.
    Inside the industry, I am active in it, in the Professional 
Beauty Association. I appreciate those comments about the role 
of associations, because I do think that is part of it. PBA is 
a national nonprofit representing all segments of the industry. 
So that would be salons, like myself, spas, barber shops, the 
individual professional, manufacturers and distributors, and 
licensed professionals.
    The diversity of membership made it a little difficult for 
me to even prepare my testimony today because that is a lot of 
different points of view. So I think the view of a for-profit 
school owner who is preparing people for their licensing exam 
is different than my point of view possibly. And a manufacturer 
and distributor of products that are distributing through the 
professional channel have probably never sat on a licensing 
board. I have. So I am going to approach this from my own point 
of view.
    In the past, I have testified to House Ways and Means on 
tip income reporting. I have served on the Massachusetts Task 
Force on the Underground Economy and the Board of Cosmetology, 
and I am happy to share my experience in that. And then outside 
the industry, I am a board member of Work Inc., a leader in the 
field of providing work opportunities for people with 
disabilities. So in all my roles I have really been focused on 
how to get people in, not keep them out.
    Since I am testifying for myself, I will describe my 
business. It is really services. Our revenue is derived from 
services in retail, 90-10 split. That is pretty typical in the 
industry. Retail, of course, have been affected by e-commerce.
    Less unusual in my own industry is that I employ my 
workers. And I represent really only about 13 percent remaining 
of my industry that employs workers. The great majority now are 
classified as self-employed. I see that really as a challenge, 
both on the licensing side and just the competitive side. And I 
don't know what all of the implications are, but it is 
significant to know that fact. It does create a different 
landscape and a lot of movement in the industry, and that 
movement has the implication of labor, taxes, and licensure.
    In my business, we are offering what we should: health 
insurance, disability, retirement, training and development. We 
are even now looking at student loan assistance. But the truth 
is, is that 65 cents of every dollar is currently going to cost 
of labor, and I am trying to figure out how do I fit it all in.
    None of this changes the fact that if I want to grow Zona, 
I have got grow head count. And as members of this Committee 
well know, head count is hard for all businesses in a 4 percent 
unemployment environment. Now, take that 4 percent and let's 
slice it up and say, of that 4 percent, who holds a license in 
cosmetology and wants to work in an employment situation. So 
low unemployment, worker classification, high turnover.
    Here is another problem: There is only one way into my 
industry, and that is through a program that is going to lead 
to licensure. In Massachusetts, that is the lowest standard of 
hours that there are in the country. Massachusetts and New York 
are 1,000 hours. That still, for practical purposes, means the 
better part of a year for someone to go to cosmetology school 
and somewhere in the band of $12,000 to $22,000. So that is a 
big issue.
    Since our business model is upper mid-market, we still have 
preparation to do, we still have training to do, because the 
license provides a necessary, important, I believe, level of 
standards, but we are not done there.
    And our entry-level duties is really a focus of mine when 
it comes to getting people in, because there is a fair amount 
of attrition from the industry. There might be someone who goes 
to beauty school, and then once they are in the actual job, 
they develop a skin condition and they are out of the business 
in a short order of time because they were never really exposed 
to that in the training. But they still have the $20,000 
student loan, right?
    So how do you get people in at the front end to try an 
industry so that you have less problems with student loans, 
with a variety of things. So those duties, shampooing hair, 
blow drying hair, could give people a chance to enter partially 
before committing that kind of resources.
    I can't fill these entry-level jobs right now. There is no 
licensing mechanism to do that. Someone has to do the whole 
deal to try to find out if they want to try it.
    As you know, for-profit education is being scrutinized, 
further regulated, on both the Federal and State levels. 
Putting the politics of for-profit aside, there are 30 percent 
fewer schools today than there were just a few years ago. In my 
own State, there are 10 fewer. So not only is school difficult, 
there are fewer of them, so there just aren't the graduates. I 
personally attempted to purchase a school. And when I looked at 
the environment, I was like, no thanks, I will stick with 
cutting hair.
    But it leaves us salon employers almost entirely 
independent. So what do we do about it? I am not prepared to 
say licensing should go away. I need the foundation. I need the 
commitment. But I do think employers, like myself, should be 
designed in, particularly at the entry level, creating reforms 
where appropriate.
    I believe we do need boards with industry participants with 
the right controls. I do not think the Federal Government 
should be completely dictating to a State, but there is 
legitimacy to the conversation and to the Federal Government's 
economic freedom and competitiveness concerns.
    I do think we need to move past just the public safety 
argument to recognize that licensing also impacts public 
welfare. The beauty industry is a people business. And the 
labor intensiveness triggers not only safety concerns, but also 
public interest concerns.
    I think licensing does present a barrier, but there are a 
lot of barriers, and it is not necessarily an absolute barrier. 
If it was unregulated, I am not sure how I feel about it, 
because in an unregulated environment I think entry into an 
occupation is not barrier-free. Movement is not barrier-free, 
workplace barriers, informational barriers, cultural barriers, 
discriminatory barriers.
    I would be happy to talk about the nail salon issue in New 
York where it was licensing that helped find some exploitation 
there.
    But I definitely believe that occupational licensing can 
and should be looked at for some opportunities of reform and 
can be a tool to get people in, not keep them out.
    Thank you very much.
    Chairman BRAT. Great. Thank you, Mr. Zona.
    I now yield to our ranking member for the introduction of 
the next witness.
    Mr. EVANS. Thank you, Mr. Chairman.
    Good morning. It is my pleasure to introduce Dr. Kleiner, a 
professor at the Humphrey School of Public Affairs and the 
Center for Human Resources and Labor Studies, both at the 
University of Minnesota Twin Cities. He is also a research 
associate in labor studies with the National Bureau of Economic 
Research and serves as a visiting scholar in the Economic 
Research Department of the Federal Reserve of Minneapolis.
    He has published extensively in the top academic 
publications on the topic, including three books on occupation 
regulation. Mr. Kleiner has also testified internationally and 
domestically on occupation regulations and provided guidance to 
a variety of agencies, including the FTC, the Treasury, DOJ, to 
name just a few. He received his doctorate in economics from 
the University of Illinois.

                  STATEMENT OF MORRIS KLEINER

    Mr. KLEINER. Thank you, Chair Brat and Ranking Member Evans 
and the other members of the Subcommittee.
    Let me start with my conclusions, and as echoed in an 
article that appeared last week in The Economist magazine, 
because it establishes that wage and other benefits of 
occupational licensing are concentrated primarily among the 
individuals who are already well paid.
    Evidence indicates that occupational licensing can hamper 
mobility, making it harder for workers to take advantage of job 
opportunities in other regions. There is relatively little 
evidence to show that occupational licensing has actually 
improved the quality of delivered services in many fields, 
although it has been shown to increase prices and limit 
economic output.
    Government should require cost-benefit analysis prior to 
new licensing rules, allow practitioners to cross borders 
without economic penalties, and reduce regulations in certain 
occupations.
    First, occupational licensing makes it more difficult to 
enter an occupation and move across political jurisdictions. 
While licensing may be an effective means of boosting wages for 
some occupations, licensed workers are not always better off. 
Empirical evidence indicates that licensing can hamper 
mobility, making it harder for workers to secure jobs in other 
States.
    Occupational licensing can thus serve as a deterrent to 
geographic movement in several ways. For instance, licensing is 
typically administered at the State level and workers may have 
to repeat many of the requirements and investments necessary to 
gain licensure when moving across State borders.
    In some partially licensed occupations, for example, in 
interior design, if you are moving from an unlicensed State to 
a licensing State, you must go through the full set of 
requirements in order to get a license.
    Another issue is that relicensing requirements can be 
prohibitive in terms of both time and money, thereby 
discouraging workers from moving to other licensing 
jurisdictions where greater opportunities often exist.
    Beyond its detrimental effect on workers, this lack of 
mobility can harm consumers, especially in rapidly growing 
areas. To the extent that licensing slows the influx of new 
workers and inhibits greater competition, consumers are unable 
to access services at the lowest cost. Small businesses are not 
as likely to hire workers at existing wages, creating what they 
perceive as shortages.
    Second, licensing can affect consumer prices via several 
channels, from restrictions on worker mobility to limits on 
advertising and commercial practices. The impact of licensing 
on wages ranges somewhere between 5 to 33 percent, depending on 
the type of occupational practice and location.
    Third, occupational licensing reduces the ability of 
individuals to enter regulated occupations. For example, 
occupational licensing can reduce labor supply by between 17 to 
27 percent. Men respond to occupational licensing with larger 
restrictions in labor supply than women.
    Longitudinal data show that the longer an occupation is 
licensed, the greater the ability to limit entry and raise 
wages for its workers.
    In addition, immigrants have lower levels of licensing than 
natives, suggesting that it serves as a barrier for this 
growing group in the U.S. economy.
    Overall, licensing and the lack of consistency across State 
borders with respect to education and training of licensed 
practitioners can carry broad implications for the economic 
well-being of individuals.
    Evidence indicates that licensing influences the allocation 
of labor in critical areas of the economy, such as healthcare, 
construction, and education, and it has an important influence 
on employment, wage determination, employee benefits and 
prices.
    Some even suggest that licensing dampens the rate of 
innovation and misallocates resources within an occupation by 
setting fixed, and in some cases, arbitrary rules.
    In terms of suggestions, first, State licensing should 
require that the Federal Government should encourage cost-
benefit analysis prior to the approval of new licensing 
standards. Second, licensed individuals should be allowed to 
move across political jurisdictions with minimal retraining or 
residency requirements. And third, where feasible, government 
should reclassify certain licensed occupations through a system 
of certification or remove regulations on some professions 
entirely.
    These proposals should lead to employment growth in 
affected occupation and a reduction in consumer prices. 
Replacing licensing with certification in certain occupations, 
thereby providing more competition, would in most cases result 
in substantial gains in economic growth and employment without 
measurable harm to consumers.
    Chairman BRAT. Great. Thank you, Dr. Kleiner. I went to 
high school in Minnesota, and I am an econ professor for 20 
years out here.
    I will yield myself 5 minutes for a few questions.
    You got right to it in your comments. And you are all way 
too polite. I want you to kind of get into what is really going 
wrong here, too.
    So in Virginia we had a guy named Jim Buchanan who won a 
Nobel Prize in economics for regulatory capture and all this 
kind of thing. And you mentioned, I want to hear, I am going to 
ask you about the black market if you overregulate.
    But what I am interested in, any metrics. You kind of 
started off with an interesting thing, that some of the higher-
priced industries that have been around have more regulation 
and certification.
    And so, I mean, are there any other metrics like that, just 
real quick, off the top of your head, that you can think of? 
How do you identify? Mr. Zona said he has huge variety even 
within his industry on certification. Some it is good. Some it 
is bad.
    The American people, if you knock doors, politics, door-to-
door, and ask people, ``Do you want more or less regulation?'' 
I am stunned. They still say more. If you go to a small 
business, they say the opposite. Everybody kind of wants 
safety, but they don't get there is $2 trillion in downside 
from regulation on the economy.
    And so are there any quick metrics, just because we are 
limited for time, that come to mind? How do you identify the 
people who are gaming the system versus whether there is a 
legitimate social need for some minimal certification?
    Dr. Kleiner, I want to start with you here.
    Mr. KLEINER. Well, thank you, Chair Brat and Ranking Member 
Evans.
    Certainly there have been estimates. There was a white 
paper put out by the previous administration which identified 
many of the costs, both in terms of over $200 billion in lost 
output and, in addition, a reallocation of resources from 
relatively well-off licensed practitioners from consumers.
    So the thought experiment would be a relatively lower-wage 
waiter or waitress having to pay more for dental services. So 
there is the reallocation, it is a reverse Robin Hood effect in 
terms of reallocation of resources from poor consumers to 
relatively well-off licensed practitioners.
    Chairman BRAT. Mr. Zona.
    Mr. ZONA. I mean, there is such a variety of licensed 
occupations. So I look at mine with pride, but really 
recognizing that it is at the lower end of occupations relative 
to other licensed ones.
    And so I don't know. I don't know on that upper end. I just 
know that in mine the issue of worker classification, the 
challenge that I face at being increasingly fewer of me that 
are actually employing their people, I don't know how to 
extrapolate the economics of that. But it is the biggest 
challenge that I face.
    Chairman BRAT. Yeah. And in your industry, because 
sometimes up here in D.C. you have the big businesses, there is 
big everything, big airlines, big banks, big insurance, big 
everything. So there you go, okay, are they regulating to keep 
out the small guy?
    One thing I haven't heard anyone comment on: As 
bureaucracies form, you get fees. You are the director of an 
association that is going to certify, so your new interest now 
is to do certification. I mean, so is it big business putting 
pressure on certificates or is some of this just the nature of 
bureaucracy--``Hey, once you start certifying, let's do more, 
we need to add more safety stuff, we need to add more of 
this.''
    And the harm comes when Mr. Dieterle mentions this poor 
woman that has no subsistence. She has no job. And so you 
always add to regulation-- ``Oh, this is good, the shop should 
have this, this, and this.''
    We have kind of a daycare crisis in this country. I looked 
into that. We have churches that are willing to do it, seniors 
that are willing to watch kids, and they can't do it because of 
the regulation of the building.
    You have a free daycare solution built into the economy 
sitting there, but you can't do it. And the harm comes to the 
moms and dads who need some daycare and whatever. No one ever 
sees the harm. That is always the hidden part that is brushed 
aside.
    And so have you ever seen, any of you seen just this kind 
of inherent nature built into bureaucracies themselves, that 
once you start certifying, they take pride in their industry, 
but there is a downside?
    Mr. ZONA. I will comment once more quickly and let others.
    It is interesting, because I don't think our industry on 
the trade association side has really made a significant effort 
to certify. It happens from manufacturers. But it is a very 
fragmented industry, and maybe many of the ones that are 
licensed are. And it has been licensed since, I want to say, 
the 1920s.
    So it has been convenient, I suppose the word would be, for 
the industry to say that is for the State boards to do, right? 
And so I think this conversation and the pressure, if you will, 
from Congress and the States, all of this has been healthy. It 
gets us paying attention and maybe doing more as an industry 
than we have in the past.
    Chairman BRAT. Good.
    And I am over my time. I am going to come back to it when 
we go around. But right now I would like to yield to the 
ranking member, Mr. Evans, for his questions.
    Mr. EVANS. Thank you, Mr. Chairman.
    Mr. Hall, in many instances professional associations 
request a State legislature to enact licensing regulations. How 
do we balance the need to ensure quality service while also 
ensuring competitiveness in the market?
    Mr. HALL. I think that is a great question. And I think 
that is exactly why we are here. That is the hard part. 
Because, clearly, licensing, making sure professionals provide 
adequate services, even above-adequate services, I think that 
is very important. But when that licensing becomes a barrier to 
starting your own business or a barrier to a new job, I think 
that is when we have a problem.
    So I think the first thing to do, how we can implement 
that, again, is what we are doing today, increase awareness. 
And I think the FTC's efforts through their task force, I think 
that is a good first step to raising awareness. This hearing as 
well.
    I think a critical factor is finding some way to have 
States come together so that there is some ability for 
reciprocity. I think each of us has talked about being able to 
move and provide services in other States.
    Mr. EVANS. While you are at that point, going to my next 
point, then, how do we encourage States and local governments 
to standardize where appropriate without trampling their 
autonomy?
    Mr. HALL. Great question.
    Mr. EVANS. I know the chairman doesn't want the idea of 
micromanaging Richmond. So the fact of the matter is, how do we 
strike that balance without--States.
    Mr. HALL. I think we are in our 241st consecutive year of 
arguing over Federal Government versus State government, and we 
probably will continue to do that.
    And I think at the end of the day, and I certainly yield to 
you guys, this is your expertise, not mine, but using our 
influence in this Committee, in the Federal Government, back in 
our constituencies to let them recognize this is a problem for 
their industries as well.
    We kind of have that human nature thing of we want to 
control what we have, we want to control our association, our 
industry, and it is kind of scary to open it up to others, when 
the actual fact is, the more we open it up, the more everything 
grows. And I think that communication, that awareness is the 
number one thing, I believe, we can do today to make a 
difference at the State level.
    Mr. EVANS. Dr. Kleiner, your reaction to what I just asked 
in terms of questions from your perspective of that balance of 
autonomy?
    Mr. KLEINER. Ranking Member Evans, I think that these 
issues are a continuing issue of tension. And certainly one 
potential solution might be the Restoring Board Immunity Act, 
which is a tradeoff of allowing board members to be immune from 
antitrust litigation.
    For the States examining very closely the three issues that 
I mentioned, in terms of doing cost-benefit on new occupations 
becoming regulated. Questions of migration. And then looking at 
issues of reducing regulation and examining do all these 800-
plus occupations that are licensed in at least one State, do 
they all need to be licensed?
    And certain States, such as Michigan, have chosen to 
deregulate and move from licensing to certification of many 
occupations. Colorado has done that. And several governors have 
taken the lead and have vetoed new occupations that are seeking 
to become--moving from either certification or no regulation to 
becoming licensed.
    Mr. EVANS. What was the incentive for those States to take 
that kind of action?
    Mr. KLEINER. I think part of it was the governors looking 
at issues that this Committee is looking at and saying, Do 
these occupations need to be regulated? What have been the 
effects on small businesses of what they would perceive or many 
small businesses would perceive to be labor shortages in 
certain areas?
    Businesses coming to the legislature and saying, Well, do 
we really need to have people do what might be considered scope 
of practice? That is, there are certain jobs that, for example, 
a plumber or electrician has to oversee the work of someone who 
is actually doing the work. So there are scope of practice 
issues which are also a question and are they creating 
inefficiencies in the economy.
    So all these are issues that have been brought to the 
States and have led both the legislature, in some cases, and 
the governors to move in many cases to reduce regulation.
    Mr. EVANS. Mr. Chairman, why I asked that question, I was a 
legislator for 36 years, so a little special place in my heart 
at the State level. So I yield back the balance of my time.
    Chairman BRAT. Thank you very much.
    And at this time I would like to yield 5 minutes to Ms. 
Clarke from New York.
    Ms. CLARKE. Thank you, Mr. Chairman, and thank you to our 
ranking member. I also want to thank our panelists for sharing 
your insights this morning.
    Professional licensing has existed for almost as long as 
industry itself. This vital service ensures that consumers are 
protected from hucksters and receive nothing but the best 
quality service from qualified professionals in everything from 
their door repairmen to their hair stylists and barbers.
    However, as has been stated in the testimony of our expert 
panelists here this morning, burdensome licensing procedures 
can also price entrepreneurs out of the market and prevent 
consumers from having access to the best number of 
professionals in their area. When this happens, everyone loses.
    As just one example, a vegetation pesticide applicator in 
New York State must pay $3,000 and undergo 66 hours of training 
in order to be licensed, while the same licensed professional 
in Nevada must pay $450 and undergo 16 credit hours of 
training. It is tough to tell from these facts alone whether 
$3,000 is too much or $450 is too low.
    However, the fact remains that this is a huge disparity 
that is not fully accounted for by the vegetation alone. We 
must therefore do what we can to ensure that licensing 
standards are fair and uniform without harming consumers or 
professionals.
    So, Dr. Kleiner, occupational licensing is primarily a 
State function. What role, if any, does the Federal Government 
have in reforming and/or creating a standard for these laws?
    Mr. KLEINER. Thank you for your question.
    Certainly the States can provide moral suasion, or the 
Federal Government can provide moral suasion to the States in 
terms of implementing and moving toward reducing burdensome 
licensing. And also, under the Federal Trade Commission, there 
can be tradeoffs that can be granted in terms of reducing 
regulations on members of the board.
    For example, right now, many State board members are 
concerned or perhaps won't even serve on State boards because 
they are fearful of being sued under a recent Supreme Court 
case involving North Carolina Dental v. the Federal Trade 
Commission, which the Federal Trade Commission won that 
particular case, and board members are concerned about their 
service on boards.
    So the tradeoff might be immunity from lawsuits and 
reducing burdensome regulations that affect both small 
businesses and consumers.
    Ms. CLARKE. And, Mr. Hall, how can we make it less 
expensive for entrepreneurs to become licensed?
    Mr. HALL. That is a great question. I think technology over 
time can help us with that process. I think education, 
training, online access to those materials can help with the 
overall cost.
    For those industries that require travel to a local school, 
if those can then be expanded to online applications, I think 
that is another way to reduce the cost.
    I think the more scary thing again for me is, just like 
your specific example, when you live in one State and you may 
have a barrier to entry of what you choose to spend your life 
doing of $3,000 and 10 weeks of training, you move across the 
State line and now it the only costs you $456. That seems to be 
a disparity that doesn't make sense.
    So I certainly believe decreasing the cost is one of the 
priorities we should manage, especially for those lower-income 
people who are looking for a way to take care of themselves and 
their families. I think that is very important. But at the same 
time finding some way to communicate amongst the States, 
getting them to communicate amongst one another to find some 
uniformity and reciprocity that can make the whole process 
easier.
    Ms. CLARKE. Thank you.
    Mr. Dieterle, in your testimony you spoke of opportunity 
hoarding. How can we best create a system of licensing that 
benefits all?
    Mr. DIETERLE. That is a great question.
    I think it was previously mentioned there are several 
Federal tools, such as the Restoring Board Immunity Act, that 
would potentially position the Federal Government to really 
kind of investigate and incentivize State boards, that are 
mostly comprised of self-interested economic actors, to kind of 
clean up and reexamine how they operate. And I think that that 
would go a long way towards getting rid of some of the low-
hanging fruit of situations where there is kind of just blatant 
opportunity hoarding going on.
    I think, in addition to the enforcement efforts that the 
FTC has, they also have an advocacy role, as I mentioned in my 
testimony. And a lot of times when licensing laws are proposed 
at the State level, a lot of State legislatures act as part-
time institutions, composed sometimes of amateur legislators, 
and a lot of times the only voice in the room in those 
situations is the industry and the people that want licensing.
    And the FTC can, for example, file advocacy comments 
sometimes at the State level and kind of bring more of a 
competition, market-oriented analysis to it, suggest maybe 
alternatives to licensing that are not as burdensome but still 
protect health and safety.
    So I think that kind of using that advocacy power and 
enforcement power of the FTC, in particular, would be a way to 
address some of the situations where there is just kind of 
blatant opportunity hoarding going on.
    Ms. CLARKE. Very well.
    I thank you, Mr. Chairman. I yield back.
    Chairman BRAT. Very good.
    I just wanted to ask a couple more questions, and then if 
the ranking member has a couple or if anyone else wants to 
continue.
    But Dr. Kleiner suggested doing cost-benefit analysis on 
small businesses and certifications, whatever. For smaller 
firms, I love the idea intuitively, but economists, we can make 
the numbers scream and go our way, and we can torture the data 
until it says what we like it to say.
    And so our Catholic brothers and sisters have this thing 
called the preferential option for the poor. And what that 
means to me in this context--or could mean. I mean, I would 
like to hear it. For me, the preference or the option should 
always go to the poor, right? Before you certify and exclude 
people from a lifetime calling or profession, you better have a 
real good reason to inhibit someone's liberties.
    So someone has their talents, it is their passion maybe. 
They want to go into a livelihood. And then some certification 
is going to say, ``You can't do that with your life.'' Wow. So 
that is kind of interesting.
    So my own bias is clearly on behalf of the poor and the 
creativity and the startup there. And so I will just ask you, 
Mr. Dieterle, if you can give an example or two of where the 
poor are getting crushed in terms of opportunity.
    And then if the others want to think of: All right, Brat, 
you are exaggerating too much, there are some clear cases where 
you have got to have certification, because if you don't, this 
is what is going to go wrong. So if someone wants to think of 
the counter-example.
    But give us a couple examples that you have run across 
where someone at the lower end of the income distribution, just 
getting started, has just had their life stifled by these regs.
    Mr. DIETERLE. Yeah. I think it is the same thing you are 
saying, just maybe different words for it, a presumption of 
liberty, I think. That the presumption is that if it is safe, 
that you should be able to practice in a certain profession.
    And there are a lot of cases where there isn't that 
presumption. The presumption runs the opposite way. The 
presumption runs that it is totally legitimate to have this 
license. And, of course, there are safety concerns, quality 
concerns, even if that hasn't been proven. And that actually 
really bites people at the local level.
    I mean, anecdotally, if you want stories, there are stories 
of a lot of immigrant communities that practice African natural 
hair braiding, for example. They have come to the United 
States, they want to be able to continue practicing that 
tradition of theirs and a skill that they know. And several 
States, Missouri and others, have stopped them from doing that. 
They have had to shut their businesses.
    There was a gentleman in Tennessee----
    Chairman BRAT. Let's just go through these one-by-one.
    So on the hair braiding, does anyone have a compelling 
reason on the safety side or the reg side why that person 
shouldn't be allowed to do that without a certificate? I mean, 
is there some compelling--I mean, it is just interesting.
    Keep going. Sorry to interrupt you.
    Mr. DIETERLE. And there may be arguments for it. I mean, a 
lot of the issue with that, to be fair, is that, again, it is 
kind of a scope of licensure issue. They are required to go to 
cosmetology school and a lot of those schools don't even teach 
natural hair braiding. So maybe you could make an argument that 
there is some quality, safety concern there, but it is not 
narrowly targeted to actually address that issue.
    Another example is a gentleman in Tennessee. Actually, 
Tennessee just passed a law. It is not an old law. It is 2015. 
And they said that anyone that is a barber in the State had to 
have a high school education and this gentleman didn't.
    I don't know about anyone else in this room, my high school 
did not teach barbering. That was not a class that was taught. 
And so it is really, again, totally unclear. Maybe, again, yes, 
there are health and safety concerns there. Maybe you could 
look at inspections, maybe you could look at bonding, other 
alternatives to licensing. Maybe licensing is appropriate.
    But it certainly seems like the burden of requiring a high 
school degree in that situation, or like D.C. did with 
childcare, requiring college degrees now for childcare workers 
in the District, seems just totally out of proportion to that.
    And that is actually affecting those people that, again, 
are usually low-income populations, from actually being able to 
have that presumption of liberty and that presumption that they 
can work in a field and better their lives.
    Chairman BRAT. Right. And so then a counter case where the 
certification, there is a clear need.
    Dr. Kleiner, if you want to make a comment.
    Mr. KLEINER. Mine was really in terms of what I call scope 
of practice. So veterinarians--and this is a case that was from 
the Institute for Justice--precluded individuals who were horse 
tooth filers from filing the teeth of horses. They said that 
only a licensed veterinarian could provide those services.
    Veterinarians are relatively better paid than individuals 
who do this manually, yet the individuals who did this manually 
were not allowed because of scope of practice issues and the 
ability of the veterinary.
    Individuals who were on the veterinary board, who were 
almost all veterinarians, voted and precluded and got in the 
rules and regulations that only veterinarians could deal with 
the front end of a horse. Anyone can deal with the back end.
    Chairman BRAT. That is a good one.
    Ranking Member, do you have any closing comments?
    Mr. EVANS. One last question, Frank, if I could. Frank, in 
your testimony you stated there are other public interest 
concerns that are presented in licensing outside of the public 
safety argument. How can we address these barriers, if not 
through licensing?
    Mr. ZONA. So trade associations are obviously part of that. 
It is communication, right, when the chairman said, What is the 
opposite argument?
    Coming from the industry, I mean, I totally agree. I don't 
think the industry was even prepared, as many aren't, when some 
of these commonsense problems come about, like hair braiding, 
shampooing, et cetera.
    So we have got to figure that out, and I think it is 
getting figured out.
    On the other hand, the thing I worry about is information 
to people, because in my occupation, for an example, licensing 
really represents the one point that you certainly have with 
everyone.
    So there was a New York Times expose, if you will, on the 
exploitation of workers in nail salons that was discovered and 
dealt with to a degree because of licensing.
    I am an association person. I am a joiner. I am someone who 
likes to be involved. But the truth of the matter is most 
people are just trying to get through the day if they are 
working and they are in business. I mean, today's payroll, I 
have my sister doing it and I can be here.
    But most people just aren't going to be joiners. I know 
there are a lot of members. But you get my point, is that I do 
think that the point of contact is something to really 
consider.
    So I don't know if I have answered your question, but I 
think the industry or profession has to play a bigger role, but 
I also think that we have to be careful about losing a point of 
contact to communicate with people.
    Mr. EVANS. I yield back the balance. Thank you, Mr. 
Chairman.
    Chairman BRAT. Great.
    Well, I would just like to thank you all very much for 
coming in, and thank you very much for your testimony.
    I think the panel worked very well together. I think it was 
worthwhile. As Mr. Hall said, part of it is just getting the 
conversation going.
    You all had great recommendations on steps to put forward. 
You all put forward very credible evidence in your testimony. 
And our staffs are going to take that into account and then 
move forward and make some progress on this.
    Thank you very much for being here today.
    And with that, we will adjourn.
    I better run through the formalities, too. I also ask 
unanimous consent that members have 5 legislative days to 
submit statements and supporting materials for the record. 
Without objection, so ordered.
    This hearing is now adjourned. Thank you all.
    [Whereupon, at 10:59 a.m., the Subcommittee was adjourned.]
    
                            A P P E N D I X


                               STATEMENT


                Congressman Dwight Evans, Ranking Member


        Subcommittee on Economic Growth, Tax and Capital Access


                   House Committee on Small Business


 ``Occupational Hazards: How Excessive Licensing Hurts Small Business''


                       Tuesday, February 27, 2018


    Thank you Mr. Chairman for holding this hearing. Licensing 
is a process by which the state requires a worker to meet basic 
standards at the local, state, and federal levels before they 
are able to perform a job. While the origin of these limits had 
noble goals of protecting the safety and well-being of 
residents, we can think of instances where the requirements 
have proven burdensome and bear little resemblance to the 
function they were intended.

    It makes sense to license electricians, EMTs, daycare 
workers, and anesthesiologists. The harm done by an unskilled 
person working in one of those professions is much more serious 
than that of a hairdresser, travel guide, or florist. 
Nevertheless, occupational licensing persists and has become 
ever more burdensome across the nation.

    Since the 1950s, the number of licensed workers has jumped 
from just 5 percent of the workforce to nearly 30 percent 
today--that's nearly 1 in 4 workers. Yet, not every occupation 
is regulated consistently across States. Fewer than 60 
occupations are regulated in all 50 States, showing substantial 
differences in which occupations States choose to regulate.

    Making the situation worse for workers, many of whom are 
striving to be small business owners, are the fees required, 
training costs, and time spent studying and testing. While the 
requirements serve a functional purpose, they are also a 
barrier for entrepreneurs to enter an occupation--especially 
low-income and immigrant workers.

    Today's hearing will give us the opportunity to learn more 
about the genesis of professional licensing and its evolution. 
Though this issue is primarily one for the states to take up, 
it is nevertheless important for us to bring it to the 
forefront because it has an effect and can help guide 
policymaking at the federal level. Licensing requirements have 
exploded to new fields, some that merit regulation and others 
that raise the question of whether there is too much licensing.

    States have broad powers to regulate their workers and have 
a duty to protect their residents. Requirements for training, 
fees, and examinations can keep qualified individuals from 
starting a business or entering a new profession. Most 
importantly, licensing restricts the entry of many immigrants, 
minorities, and low-income entrepreneurs. For example, mandates 
for college degrees, English proficiency, and residency 
requirements have been found to exclude these workers from 
obtaining licenses in many professions.

    And a lack of uniformity among the states in their 
licensing rules impact many entrepreneurs attempting to move to 
another market where they see an opportunity for business 
growth. This is especially prevalent for military families who 
often move from one jurisdiction to another. States should not 
be hindering growth in these viable markets for business 
expansion or creation--they should be fostering these self-
starters.

    As more Americans begin to take risks and start their own 
businesses, it is vital to bring licensing requirements to 
their attention. Balancing the need for market competition with 
the need for consumer protections will give small firms the 
certainty they require, ensuring their success.

    I thank all the witnesses for being here today and I look 
forward to your comments.

    Thank you and I yield back.
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
    
       
    However, what concerns me regarding those job duties that 
require licensing are three-fold:

          1) the licensing barriers of money and time

          2) the inconsistency of licensing requirements from 
        state to state and locality to locality

          3) the impact on minorities and other vulnerable 
        populations.

    In an NASE snapshot survey for our members conducted last 
week, 70% indicated that they must adhere to some level of 
licensing tied to their profession. This is trend of requiring 
licensing is supported by the excellent 2017 2nd edition 
``License to Work'' report by the Institute for Justice, which 
found, ``in the 1950s, about one in 20 American workers needed 
an occupational license before they could work in the 
occupation of their choice. Today, that figure stands at about 
one in four.''

    The NASE has been pleased to see the issue of licensing 
being tackled by the highest levels of our federal government, 
we continue to be incredibly supportive of the Economic Liberty 
Task Force established by the acting Federal Trade Commissioner 
chairman, Maureen Ohlhausen, which has been convening 
stakeholders together to identifying ways in which the federal 
government can safely advocate for decreased licensing 
requirements while supporting state initiatives that do the 
same.

    As it relates to the financial burden, of the 102-
occupational license reviewed and included in the 2017 
Institute for Justice report, they found that on average it 
cost an individual $267 in fees and one exam, and nearly a year 
of education and experience. For an individual looking to enter 
the workforce or make a career shift, the financial costs of 
securing the appropriate licensing requirements is a 
significant barrier. It should be noted that both the Institute 
of Justice report and the Economic Liberty Task Force, both 
express concern as to the impact of the financial barrier on 
the most economically disadvantaged citizens, causing a barrier 
to entry and mid-level jobs that could have a substantial 
impact on the lives of those individuals if it wasn't for the 
cost associated with moving into that profession.

    As it relates to the inconsistency of licensing 
requirements from state to state and locality to locality. This 
is the most challenging for our dynamic population of 
entrepreneurs that are more mobile and creative in the way in 
which they work. The figures and states are just overwhelming 
to an entrepreneur looking to move his or her business from one 
state to another. Especially, if that individual is looking to 
relocate say to the popular Golden State, California, which 
requires the largest number of occupational licenses and 
imposes steep requirements to attain proper licensing.

    While the FTC has honed in on 23 occupations, ranging from 
dentists, electricians, and sellers of contact lens, that could 
benefit from standardization, it really is going to require 
states to understand the importance of creating an environment 
in which entrepreneurs can easily traverse geographic areas 
without fear of running afoul of complex licensing requirements 
that are vary widely from state to state.

    As I stated at the beginning of my testimony, some 
licensing requirements are necessary, but what has become 
evident in our own research is that for many of our members, 
nearly 68% in our snapshot poll, said that they find the 
licensing requirements hinder their ability to operate their 
small business. What we don't know in our research but could 
speculate is that for many Americans, they do not pursue a 
profession or job because of the barrier that the licensing 
requirements pose.

    As always, the NASE, likes to not just identify problems 
but rather, put forth creative solutions to those problems we 
identify! I would propose several ideas that I know are 
advocated for by many other organizations, including:

          1) Support and amplify the FTC's Economic Liberty 
        Task Force;

          2) Work to encourage Associations and organizations 
        to review their own licensing requirements, which will 
        turn, encourage state and local governments to review 
        their licensing requirements

          3) Support scholarship and other avenues in which 
        Associations or states could provide financial recourse 
        for the costs related to licensing.

    As we continue to move to a more dynamic and mobile 
economy, we will need to ensure that your physical location 
shouldn't dictate the work you are permitted to do, but rather, 
that entrepreneurs should be encouraged to traverse across 
state lines and conduct business in a safe way, but that 
doesn't unduly burden them in a way that could impact their 
livelihood.

    Thank you and look forward to your questions.
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
   
    
    Chair and members of the Committee on Small Business, 
Subcommittee on Economic Growth, Tax, and Capital Access

    My name is Morris Kleiner. I testify before you today on my 
own behalf and not as a representative of the University of 
Minnesota or any other organization with which I am affiliated.

    I have a Ph.D. in economics from the University of Illinois 
at Urbana-Champaign. I am a professor at the Humphrey School of 
Public Affairs at the University of Minnesota Twin-Cities. I 
also teach at the University's Center for Human Resources and 
Labor Studies. I am a visiting scholar at the Federal Reserve 
Bank of Minneapolis, a Research Associate at the National 
Bureau of Economic Research headquartered in Cambridge, 
Massachusetts, and a Visiting Scholar at the Upjohn Institute 
for Employment Research in Kalamazoo, Michigan. I have worked 
in government, including military service, and consulted for 
many public and private sector organizations. My research 
specialty includes the analysis of institutions, such as 
occupational licensing, in the labor market. I have published 
in the top academic journals in labor economics and industrial 
relations, and I am the author, co-author, or coeditor of eight 
books. Three of these books focus on occupational regulation 
and were published in 2006, 2013, and 2015 by the Upjohn Press. 
These books have been the leading volumes on occupational 
regulations based on sales and citations to the work in Google 
Scholar.

    Let me start with my conclusions because it establishes 
that the wage and other benefits of occupational licensing are 
concentrated primarily among individuals who are already well 
paid.\1\ Evidence indicates that occupational licensing can 
hamper mobility, making it harder for workers to take advantage 
of job opportunities in other regions. Moreover, there is 
relatively little evidence to show that occupational licensing 
has actually improved the quality of delivered services in many 
fields, although it has been shown to increase prices and limit 
economic output. Hence, governments should require cost-benefit 
analyses prior to new licensing rules, allow practitioners to 
cross borders without economic penalties, and reduce 
regulations on certain occupations.
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    \1\ Curr, Henry, 2018, ``How to Rig an Economy: Occupational 
Licensing Blunts Competition and Boosts Inequality,'' The Economist, 
February 17.

    Occupational licensure is the process by which governments 
establish qualifications required to practice a trade or 
profession, so that only licensed practitioners are allowed by 
law to receive pay for doing work in the occupation. During the 
early 1950s, occupational licensing in the U.S. covered about 
4.5 percent of the workforce, but by 2015 it had climbed to 25 
percent according to the U.S. Bureau of Labor Statistics. Below 
I enumerate these issues and suggest how these regulations 
influence the economy and small businesses. I also provide 
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suggestions for improving current policies.

    First, occupational licensing makes it more difficult to 
enter an occupation and move across political jurisdictions 
\2\. While licensing may be an effective means of boosting 
wages for some occupations, licensed workers are not always 
better off.\3\ Empirical evidence indicates that licensing can 
hamper mobility, making it harder for workers to secure jobs in 
other states. Occupational licensing can thus act as a 
deterrent to geographical movements in several ways. For 
instance, because licensing is typically administered at the 
state level, workers may have to repeat many of the 
requirements and investments necessary to gain licensure when 
moving across borders. These requirements can include 
qualification criteria such as good moral character, passing 
exams, working with or for local practitioners, and engaging in 
ongoing professional development activities (an investment that 
continues throughout the worker's career). In the absence of 
reciprocity agreements--in which one state accepts occupational 
licenses granted by another--relicensing requirements can be 
prohibitive, in terms of both time and money, thereby 
discouraging workers from moving to other licensing 
jurisdictions where greater opportunities often exist.
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    \2\ See J. Johnson and M. Kleiner, 2017. ``Is Occupational 
Licensing a Barrier to Interstate Migration?'', NBER Working Paper No. 
24107. December.
    \3\ See both Kleiner, M. M. and A. B. Krueger (2010). ``The 
Prevalence and Effects of Occupational Licensing,'' British Journal of 
Industrial Relations, 48, 676(687 and Kleiner, M. M. and A. B. Drueger, 
``Analyzing the Extent and Influence of Occupational Licensing on the 
Labor Market,'' Journal of Labor Economics, 31, S173-S202.

    Multiple studies have corroborated the negative link 
between occupational licensing and worker mobility. The 
licensing of manicurists, for example, can impede cross-state 
and even international migration--particularly from Vietnam (42 
percent of all manicurists in the U.S. in 2000 were 
Vietnamese). A well-regarded study finds that the requirement 
of an additional one hundred hours of training reduces the 
likelihood of having a Vietnamese manicurist in the area by 4.5 
percentage points, while states requiring some level of English 
proficiency were 5.7 percentage points less likely to have a 
Vietnamese manicurist \4\. In other words, policies that affect 
migration are not just limited to high-income individuals.
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    \4\ Federman, Maya N., David E. Harrington, and Kathy J. Krynski. 
2006. ``The Impact of State Licensing Regulations on Low-Skilled 
Immigrants: The Case of Vietnamese Manicurists.'' American Economic 
Review 96 (2): 237-41.

    Beyond its detrimental effects on workers, this lack of 
mobility also can harm consumers--especially in rapidly growing 
areas. To the extent that licensing slows the influx of new 
workers and inhibits greater competition, consumers are unable 
to access services at the lowest cost. Small businesses are not 
as likely to be able to hire at going wages creating what they 
perceive as ``shortages.'' Taken together, these studies 
support the view that regulation may limit the number of 
practitioners in many fields, and that a policy of reducing 
barriers to state or national migration with respect to 
licensing requirements could benefit workers, small businesses, 
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and consumers.

    Second, occupational licensing can affect consumer prices 
via several channels, from restrictions on worker mobility to 
limitations on advertising and other commercial practices. The 
impact of licensing-related practices on prices ranges from 5 
to 33 percent, depending on the type of occupational practice 
and location \5\. For example, estimates completed in the 1970s 
showed that the lack of reciprocity in dentistry raises prices 
by 15 percent. A restriction on the number of hygienists that a 
dentist may employ increases the average price of a dental 
visit by 7 percent \6\. More recent national estimates showed 
that restrictions on the tasks a nurse practitioner can perform 
without the supervision of a physician raises prices of 
healthy-child exams by up to 10 percent, with no effect on 
child mortality or insurance rates for malpractice \7\.
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    \5\ See Kleiner, Morris M. 2006. ``Licensing Occupations: Ensuring 
Quality or Restricting Competition?'' Kalamazoo, MI: W. E. Upjohn 
Institute for Employment Research.
    \6\ See Kleiner, Morris M., and Robert T. Kudrle. 2000. ``Does 
Regulation Affect Economic Outcomes? The Case of Dentistry.'' Journal 
of Law and Economics 43 (2): 547-82 and Kleiner, Morris M. 2006. 
Licensing Occupations: Ensuring Quality or Restricting Competition?'' 
Kalamazoo, MI: W. E. Upjohn Institute for Employment Research.
    \7\ Kleiner, Morris M., Allison Marier, Kyoung Won Park, and Coady 
Wing, 2016, ``Relaxing Occupational Licensing Requirements: Analyzing 
Wages and Prices for a Medical Service.'' Journal of Law and Economics, 
Vol. 59, Vol. 2. May.

    These higher prices could be caused by government 
regulations intended to reduce the likelihood of poor service 
in the market \8\. The rationale is that higher prices cause 
consumers to perceive the service to be of higher quality (even 
if this is not actually the case) and thereby demand more of 
the service, which drives up the price further. On the other 
hand, current practitioners could influence regulatory 
practices in order to raise their own wages by limiting entry 
or restricting information on service prices in the market 
(health care is a prime example of this type of use of 
regulations) \9\. Under this framework, occupational licensing 
creates a monopoly in the market, with the long-term impacts 
being lower-quality services, too few providers, and higher 
prices.
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    \8\ See U.S. Executive Office of the President. 2015. 
``Occupational Licensing: A Framework for Policymakers.'' Washington, 
DC: The White House.
    \9\ Kleiner, Morris M., Allison Marier, Kyoung Won Park, and Coady 
Wing, 2016. ``Relaxing Occupational Licensing Requirements: Analyzing 
Wages and Prices for a Medical Service, Journal of Law and Economics, 
Vol. 59, Vol. 2. May.

    It is difficult to tell from the empirical studies which of 
the above causes are more likely. However, regardless of the 
exact cause, it is possible for regulated high-income 
occupations, such as dentists and lawyers, to raise prices in 
ways that may further shift income from lower-income customers 
to higher-income practitioners, thus potentially contributing 
to greater income inequality \10\. Furthermore, if wealthier 
consumers place greater value on (or can afford) higher quality 
licensed services, then lower-income individuals with less 
demand (or less ability to pay) might be adversely affected by 
tougher licensing standards, as they will have even less access 
to the increasingly higher priced services.
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    \10\ See Kleiner, M. M. and E. Vorotnikov (2017): ``Analyzing 
occupational licensing among the states,'' Journal of Regulatory 
Economics, 1-27 for a detailed analysis of the issue.

    Third, occupational licensing reduces the ability of 
individuals to enter regulated occupations. For example, 
occupational licensing can reduce labor supply by between 17%-
27%. Men respond to licensing with larger reductions in labor 
supply than women, regardless of race \11\. Longitudinal data 
show that the longer an occupation is licensed the greater its 
ability to limit entry and raise wages for its workers.\12\ In 
addition, immigrants have lower levels of licensing than 
natives suggesting that it serves as a barrier for this growing 
group in the U.S. economy.\13\
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    \11\ Blair, Peter, 2018, ``How much of a barrier to entry is 
occupational licensing?'' Working Paper. Clemson University.
    \12\ Han, S. and Kleiner, M.M., 2016. Analyzing the Influence of 
Occupational Licensing Duration and Grandfathering on Labor Market 
Outcomes (No. w22810). National Bureau of Economic Research.
    \13\ Hugh Cassidy and Tennecia Dacass, 2018. ``Occupational 
Licensing and Immigrants,'' Kansas State University Working Paper, 
February.

    New regulatory policies often include ``grandparent 
clauses'' that protect existing workers from having to adhere 
to changes in the licensure process; but, new entrants must 
meet these higher standards in order to gain entry into the 
occupation.\14\ It takes time for older, less-educated workers 
to exit the labor market, and for newer workers who have met 
the higher entry requirements to enter. This process may limit 
the supply of labor and allow those who are already licensed to 
work in the occupation to gain economic benefits by limiting 
employment growth (and thereby competition) in their field. In 
addition, occupational licensing organizations that represent, 
for example, accountants, have ratcheted up the requirements to 
attain a license, in this case from 4 to 5 years of university 
training, which has served to further limit the supply of 
licensed practitioners.
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    \14\ See Han, S. and Kleiner, M.M., 2016. Analyzing the Influence 
of Occupational Licensing Duration and Grandfathering on Labor Market 
Outcomes (No. w22810). National Bureau of Economic Research for further 
details.

    Overall, occupational licensing and the lack of consistency 
across state borders with respect to the education and training 
of licensed practitioners can carry broad implications for the 
economic well-being of individuals. Evidence indicates that 
occupational licensing influences the allocation of labor in 
critical areas of the economy, such as health care, 
construction, and education, and has had an important influence 
on employment, wage determination, employee benefits and 
prices. Some even suggest that occupational licensing dampens 
the rate of innovation and misallocates resources within an 
occupation by setting fixed and in some cases arbitrary rules 
\15\.
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    \15\ Schmidt, James, A. Jr., 2012. ``New and Larger Costs of 
Monopoly and Tariffs''. Economic Policy Paper 12-5. Minneapolis, 
Minnesota. Federal Reserve Bank of Minneapolis.

    In order to enhance the benefits and reduce the costs of 
this form of regulation, the following three policies are 
recommended.\16\ First, state governments should require and 
the federal government should encourage cost-benefit analyses 
prior to the approval of new occupational licensing standards. 
Second, licensed individuals should be allowed to move across 
political jurisdictions with minimal retraining or residency 
requirements. Third, where politically feasible, governments 
should reclassify certain licensed occupations to a system of 
certification or should remove regulation on some professions 
altogether. These proposals should lead to employment growth in 
affected occupations and a reduction in consumer prices. 
Replacing licensing with certification in certain occupations, 
thereby providing more competition, would, in most cases, 
result in substantial gains in economic growth and employment 
without measurable harm to consumers.
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    \16\ Kleiner, Morris M., 2015. Reforming Occupational Licensing 
Policies. Retrieved from the University of Minnesota Digital 
Conservancy, http://hdl.handle.net/11299/190817.
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                            Addendum

    Hierarchy of occupational regulations from least to most 
restrictive: ``Registration'' means a requirement established 
by a legislative body in which an individual gives notice to 
the government that may include the individual's name and 
address, the individual's agent for service of process, the 
location of the activity to be performed, and a description of 
the service the individual provides. ``Registration'' does not 
include personal qualifications but may require a bond or 
insurance. Upon approval, the individual may use ``registered'' 
as a designated title. A non-registered individual may not 
perform the occupation for compensation or use ``registered'' 
as a designated title. ``Registration'' is not transferable and 
is not a synonymous with an ``occupational license.''

    ``Certification'' is a voluntary program in which the 
government grants nontransferable recognition to an individual 
who meets personal qualifications established by a legislative 
body or private certification organization. Upon approval, the 
individual may use ``certified'' as a designated title. A non-
certified individual may also perform the lawful occupation for 
compensation but may not use the title ``certified.'' 
``Certification'' is not synonymous with an ``occupational 
license.''

    ``Occupational license'' is a nontransferable authorization 
in law for an individual to perform a lawful occupation for 
compensation based on meeting personal qualifications 
established by a legislative body. It is illegal for an 
individual who does not possess an occupational license to 
perform the occupation for compensation. Occupational licensing 
is the most restrictive form of occupational regulation.