State Licenses Hurt Entrepreneurs

Many elements make up a thriving entrepreneurial economy. Among them are cultures that reward risk and don’t penalize honest failure; workers who are diverse in terms of skills and training; clusters of innovation in cities or universities; and access to capital.

Just as high on the list is a regulatory climate that encourages the free flow of talent and that lowers barriers to entry into the startup economy.

A proposal by Gov. Scott Walker to create commissions to scrutinize proposed and existing occupational licenses is a welcome step toward lowering those hurdles for thousands of workers in Wisconsin. It deserves bipartisan support in the Wisconsin Legislature.

Nearly a third of all American workers are required to hold a government-issued license to do their jobs, up from less than 10 percent in the 1960s. Wisconsin is no exception to the rule. The Wisconsin Institute for Law and Liberty recently noted a 34 percent increase over 20 years in the number of credential holders regulated by the state Department of Safety and Professional Services and an 84 percent jump over the same time period in the number of license types regulated by that agency.

The institute estimated the steady rise in occupational regulation costs Wisconsin thousands of jobs each year and costs consumers hundreds of millions of dollars due to reduced competition for goods and services.

National organizations have a similar take on the hidden costs of fencing out new entrants to the job market.

The Ewing Marion Kauffman Foundation in Kansas City, Missouri, has long cited over-regulation of occupations – mainly by state and local governments – as a deterrent to entrepreneurism. Numerous academic studies have reached the same conclusion as Kauffman, which has said the proliferation of occupational licensing “creates barriers for would-be entrepreneurs and strengthens incumbent businesses.”

“These barriers often go unnoticed until the entrepreneur runs up against them,” noted one Kauffman report.

The President’s Council on Economic Advisors issued a report in 2015 urging states to adjust their licensing policies to spur growth. Liberal think-tanks such as the Progressive Policy Institute have also called for occupational license reform, noting “there is mounting evidence that professional and occupational licensing is blocking innovation and entrepreneurship across large swathes of the American economy.”

The U.S. Treasury and Defense departments have issued a joint report noting the negative effects of occupational licensing on the job prospects of military families, who often move from state to state and encounter different barriers in each.

If so many experts agree over-regulation is costing the economy and making it harder for entrepreneurs to start businesses, why are so many licensure requirements in place?

In some cases, there are legitimate public health concerns: No one wants to be treated by an unlicensed physician, dentist or nurse.

In most instances, however, it’s the professions themselves that ask for regulation. That’s in part due to a sense of internal credibility, but it’s also due to an unspoken desire to limit competition by fencing out new players.

There are alternatives to full licensure, which is the most limiting form of occupational regulation. Certification has fewer restrictions than licensing, allowing any person to perform the service but recognizing those who have attained a certain level of experience or education. The least restrictive form of occupational regulation is registration, which simply requires professionals in a field to record their qualifications with the state or another regulatory body.

Wisconsin is not alone in trying to rein in licensing creep. Ten states have formal “sunrise” and “sunset” commissions to take a hard look at new and existing worker licenses. States such as Colorado, Arizona, Vermont, Washington and Georgia have recommended against licensing interior designers, art therapists, music therapists, dietitians, landscape architects, massage therapists and behavior analysts – occupations all licensed or regulated in Wisconsin, according to the Institute for Law and Liberty.

Wisconsin’s below-average startup numbers may be dragged down by a number of factors, and excessive licensing is one of them. The state should seize on the opportunity to begin tearing down unnecessary fences to entrepreneurism.

Tom Still is president of the Wisconsin Technology Council.

This column was originally published by the Wisconsin State Journal.