A new study of occupational-licensing laws is out — and the results aren’t pretty for North Carolina.
According to a report by the Archbridge Institute, which studies barriers to economic mobility, the Tar Heel State has the eighth-highest level of occupational licensing in the country. That’s higher than any of our neighboring states. Indeed, one of our major competitors for people and investment, Georgia, has made it much easier for its natives and newcomers alike to pursue new economic opportunities. It ranks 32nd on the occupational-licensing index, which was created for Archbridge by two University of West Virginia researchers.
Why worry about licensing laws? Because there is compelling evidence that they hurt many workers, consumers, and would-be entrepreneurs. A 2022 study by Southern Illinois University professor Alicia Plemmons found that “as the monetary cost of fees and the time investment of experience and education for each worker increases, firms are less likely to locate in high-cost states.”
The effect is especially pronounced during economic downturns. A 2020 paper in the International Journal of Business & Applied Sciences considered what happened after the American economy turned south in 2007. “Comparing the beginning of the Great Recession to the trough,” the authors found that “counties in states with more licensing rules suffered greater losses in business establishments than counties with less burdensome laws.”
There are, of course, some people who benefit from such regulations. If you already work in an occupation, you may want to exclude others from competing with you for customers or employment. Or you may make money by training and coaching would-be licensees. As Morris Kleiner of the University of Minnesota and Evan Soltas of MIT conclude in a paper just published in the Review of Economic Studies, however, the social costs of occupational-licensing laws generally outweigh the social benefits.
These are the technical arguments for reform. Now let me give you a specific example. In North Carolina, you have to get a state license in order to become a plumbing technician. Protecting consumers from unscrupulous or incompetent plumbers is certainly a reasonable goal. But in the vast majority of our country, there is no requirement that plumbing technicians be separately licensed. They work for and train under plumbing contractors who are themselves licensed. Moreover, plumbing companies compete vigorously with each other to provide good work at affordable prices — and consumers freely share their feedback on sites that other consumers consult when hiring plumbers of their own.
Only North Carolina and one other state license plumbing technicians. Our state law requires that prospective licensees document 3,000 hours of experience, pay fees, and pass a state exam. It also requires that a technician be “a sub-licensee of a licensed plumbing contractor,” which would seem to call into question the need for a separate license.
I’m no expert in plumbing, of course, but I’m unaware of any evidence suggesting that North Carolinians receive better plumbing services than the rest of America does. I rather doubt we do.
Even if you aren’t convinced by my broader arguments against occupational licensing, there are surely some ways we can make North Carolina’s policies less egregious. For starters, we can stop regulating occupations that few other states regulate. Such regulations are the least likely to make sense. We can also make more licenses reciprocal — if just-arrived workers are already licensed in elsewhere, they shouldn’t need new ones here.
Furthermore, if you think the signaling effect is stronger than I do, convert state licenses into state certifications. That is, make them voluntary. If consumers really value state endorsement as a marker of service quality, professions will gladly pay the required fees and jump the required hoops in order to say they are certified by North Carolina. On the other hand, if purely private certification or just positive word-of-mouth will suffice, then the state-certification option will wither away.
Can we really allow Georgia to outperform North Carolina in this critical area of regulatory reform? I say no.