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January 2015 Policy Study, Number 15-2

   

SEA 421 Report: Establishing A Process For Self-Certification Registration

   

Regulating Occupations

   

 

The most common regulatory structures used by state and local governments to oversee occupations are as follows: licensure, certification, and registration.

 

(A) State of Indiana

 

IPLA is the umbrella agency for 38 professional boards and commissions that regulate 446,109 professionals licensed to perform 134 different occupations.[6] More than 332,000 people are licensed by other state agencies.[7] However, an even larger percentage of workers are licensed as these totals exclude an unknown number of licenses issued (discretionally) by Indiana’s municipalities for fields such as electrical, refrigeration, high pressure steam (HVACR), wrecking, heating and air conditioning. Currently, Indiana’s labor force[8] includes 3,230,944 residents aged sixteen (16) and older.[9] As such, approximately 25% of Indiana’s labor force is licensed.[10]

 

Workers in Indiana earn an average annual income of $38,812.[11]Excluding outliers, licensed professionals, on average, earn between $29,000 and $74,000.[12] Estimated nationally, the “cost of licensing … in the form of lost jobs is between 0.5% and 1.0%” of the labor force.[13] Applying the lower percentage to Indiana would result in approximately 16,000 new jobs. Consequently, more people could work and earn higher incomes if Indiana licensed fewer occupations.[14]

 

(B) When Governments License

 

      1. Economics 101

People looking to purchase services from licensed professionals base their buying decisions in part on accessibility and price. Those who decide to purchase services have access to licensed providers and can afford to pay the necessary remuneration. Those who decide not to purchase professional services are either without access or the means to pay for the services. 

 

When the government decides to license an occupation, it restricts the supply of people who can legally perform the occupation’s “scope of practice.”[15] Consumers’ “choice” is limited to hiring either a licensed professional or someone practicing illegally on “the black market.”[16] By shrinking the available supply of labor, licensing increases prices by 15% or more.[17]  Therefore, licensing is most detrimental to people who live in low population areas and/or are poor. In Indiana, more than 1.47 million people (or 22% of the total population) live in rural communities and approximately 15% live in poverty.[18],[19]

 

      1. Stunting Middle Class Growth

Melony Armstrong recently testified before Congress about Mississippi’s burdensome licensing requirements imposed on African hairbraiders and hairbraiding instructors.[20] In 2004, Ms. Armstrong teamed with others to eliminate “needless government-created barriers.”[21] Mississippi eventually changed its laws to require only that hairbraiders pay a $25 registration fee and abide by relevant sanitation codes.[22]

 

Indiana still requires someone to obtain a cosmetology license to braid hair; meaning the person must, among other things, graduate from beauty culture school and pass the examination for cosmetologist license applicants.[23] Earlier this year, Indiana’s State Board of Cosmetology and Barber Examiners denied licensure to someone because she disclosed on her application that she worked in a salon “and performed hairbraiding.” The board denied her application for practicing without a license.[24] Even though this might seem unreasonable, the board was merely applying the statutory prohibition against “styling, arranging … or similarly treating hair” without a cosmetology license.[25]

 

As these hairbraiding examples show, licensing prevents those with unique skill-sets from working in professions in which they are otherwise capable to perform.[26] Licensing’s “barriers” are often too costly to overcome, especially for those who have neither the time nor the resources to pursue a license.[27] 

 

Licensing also limits “employer choice,” i.e. restricting the applicant pool to only those who have licenses. The better option is the let-the-best-man-win approach: allow applicants to send “signals” about their qualifications or experience, and let employers choose the person they believe is the best fit for the job, licensed or not.[28]

 

(C) State’s Choice: Licensure or Certification?

 

There is a menu of options between “no oversight” – i.e. regulation through the market – and full licensure.[29]  Certification is one such option that captures licensure’s key benefit: title protection, which means that only certain, eligible professionals may use a predetermined job title that “signals” the person’s background or experience. For example, in Indiana, interior designers use a form of regulation similar to the SCR framework described in this report. Interior designers who meet statutory eligibility requirements (e.g., earn a specific degree, pass a national exam, etc.) may register with IPLA. Anyone may practice interior design in Indiana, but only those who register may use the title “registered interior designer.”[30] In fact, it is a crime for someone to “recklessly, knowingly, or intentionally” use the title personally or in advertisement or solicitation material.[31] According to records maintained by the Interior Design Coalition of Indiana, at no time has someone tried to promote herself as “registered” without first being included in the state registry.[32]  

 

With certification, consumers may retain someone who is certified or uncertified – regardless of her personal or professional background or educational achievements.[33] When members of the legal profession told Nobel laureate economist Milton Friedman that every lawyer should be of Cadillac quality, he famously replied that “many people would be better off with a Chevy, a cheaper but clearly a functional alternative.”[34] Certification in lieu of licensure facilitates these types of purchase options for consumers.

 

If licensure improves quality simply by restricting entry into the profession, then consumers are being forced to pay at least 15% more for quality than they might otherwise want or need.[35] Not everyone demands the same level of quality.[36] The bottom line is that certification cures problems associated with licensing, in part, by providing consumers with more choices and lower prices.[37]

 

   

 

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