The Overlicensed Society

Unemployment postrecession remains stubbornly high, yet states throughout the U.S. have been requiring that an ever increasing fraction of workers be licensed before they can offer their services or open a business—about 30% today, up from just 10% in 1970, according to thorough studies by the University of Minnesota professor Morris Kleiner. And the problem is concentrated in the services sector, where roughly 80% of Americans (an even higher fraction if government employees are excluded) actually work. Two of the worst areas are health care and law (the latter not surprisingly, given that most laws are made by lawyer-legislators and overseen by lawyer-judges). Although “minute clinics” staffed by nurse practitioners are spreading rapidly in states that permit them, many states (including New York) don’t. NPs in both hospital settings and doctors’ offices could be offering a lot more routine medical care more cheaply, and often with greater attention to patient needs than harried doctors can provide, if only state laws would allow them to do so. When licensing requirements thwart eager professionals hoping to offer cheaper services, who is served? The legal profession is just as bad and maybe worse. We have thousands of law students in this country who endure three years of law school and incur huge debts, only to find that jobs are scarce even though the profession has plenty of work that’s easily done with less training. As paralegals, or as part of a new class of specialized attorneys, they would be perfectly able to draft wills or handle traffic accidents, minor criminal matters, and many divorces. But the harsh “unauthorized to practice law” restrictions in most states prevent this. Also often thwarted are more-expansive services from LegalZoom and other web-based companies, which are permitted to produce cheap standard legal documents for new businesses and individuals but not to provide legal advice. Unfortunately, health care and law are only the tip of the iceberg of excess licensing. A whole range of service providers, from tour guides to horse teeth cleaners, wig servicers, and witches, are now subject to state licensing rules. Business suffers directly from the costs of excess licensing in health care, and so has a clear interest in overcoming resistance from physicians to trained nurses’ providing many health services—and in opposing efforts to require even more training for nurses and physical therapists. Furthermore, business could improve its image by siding with consumer groups to remove the barriers to alternative, cheaper providers in law and other fields where costs for consumers are raised unnecessarily. The fact that lawyers largely write the laws, or that those now licensed want “legal” protection from new competitors, does not mean that a coalition of business and consumers can’t demand reform. A forthcoming Kauffman Foundation task force report will suggest a two-pronged approach to change: getting states to scale back their current restrictions and pressing for a federal “mutual recognition” law that would permit service providers (even unlicensed ones) in one state to do business in others—just as drivers licensed by one state may drive in others. Consumers can be protected from shoddy service providers by current state tort laws and consumer protection bureaus but primarily by market forces, without the need for anticompetitive licensing rules. What better time than now, in this sluggish recovery period, to begin removing self-inflicted barriers to job creation and service innovation?

The Overlicensed Society

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