Opinion: Michigan should reform its occupational licensing laws
While the national economy continued to chug along in 2019 in the longest economic recovery in U.S. history, Michigan hit a wall.
According to economists at the University of Michigan, the state's economy only grew 0.4% last year, compared to 2.5% in 2018. And 2020 won’t be much better, they say, estimating that the state's economy will only grow 1.3%.
That’s bad news for any state, but it’s particularly bad for Michigan. What with its dependence on the often-volatile auto industry, Michigan's economy is particularly vulnerable in recessions. Sure, the national economy looks safe right now, but state policymakers must get ahead of the next downturn.
The best way to protect Michiganians from economic disaster would be to stimulate long-term growth and create lasting jobs, especially for lower-income residents.
Reforming the state's occupational regulations could do just that.
Right now, over 18% of Michigan's workforce needs a government-issued license to perform their job. That's not just high-income professionals like doctors and lawyers. In Michigan, jobs as varied as door repairmen, mason contractors and makeup artists all need one to work.
These licensing laws were meant to improve public safety and service quality, but, according to most of the evidence, they don’t do that at all. Studies of regulations by occupation, from cosmetologists to electricians to plumbers and real estate agents, have found that stronger licensing regulations don't increase quality in public health or service.
Nevertheless, these laws stay on the books, protecting current license holders from competition and allowing them to charge higher prices. It makes sense that people would think twice before getting a license. According to the Institute for Justice, a public-interest law firm, cosmetologists must attend 1,500 hours of education in Michigan, pass two exams, and pay a $200 fee to get a license. Many folks can't afford to take almost a calendar year's worth of classes in order to switch career paths. So, then, thanks to the protection from competition that licensing laws provide, licensees receive 15% higher wages than they would without protection.
Who’s left in the lurch? Consumers and poorer workers.
These regulations impose real costs on Michigan's economy. According to a study from the University of Minnesota’s Morris Kleiner, Michigan's occupational licensing requirements cost the state just under 80,000 full-time jobs. Furthermore, as these licensing laws misallocate resources by preventing workers from taking better-paying and more productive jobs, they reduce economic output in the state by almost $8 billion annually.
Some state and local governments have defended these laws by pointing to the revenue they raise from the often-exorbitant fees they charge for the licenses. Governments do raise some revenue — Michigan governments, for example, raised $195 million from them in 2017 — but these fees make finding better employment more expensive for the poorest workers.
Furthermore, occupational licensing ultimately costs the state government money. Revenue does come in from these regressive fees, but slower economic growth means less revenue from income, sales, and property taxes. In my study from the Pioneer Institute, I found that Michigan loses a staggering $746 million a year in tax revenue thanks to slower economic growth from occupational licensing regulation. That’s a net loss of $551 million — more than half of the government spending Gov. Gretchen Whitmer removed from the state budget in a recent round of negotiations.
It doesn’t have to be this way. Michigan could follow Arizona's example and recognize all licenses earned in different states, as the Mackinac Center’s Jarrett Skorup suggested, instead of making new residents get an in-state license. Michigan could also repeal its licensing requirements for jobs that aren’t concerned with public health or for which many other states don't require licenses, as it did for painters last year.
If lawmakers would work to implement these reforms, they’d find that working-class Michiganians could end up with better jobs and economic opportunity. With such a reward, they’ve got an obligation to at least try.
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.