Licensing Makes It Harder to Go Where the Jobs Are

Bloomberg View , December 28, 2017

The U.S. is a continent-wide single market with free movement across state lines. This has driven economic development since the 19th century. It encouraged mass production, national distribution and labor mobility.

That calculus is changing as services, from home repair to hospitality to health care, make up a bigger chunk of personal spending and a higher proportion of jobs. You can still build a successful enterprise that spreads costs over a huge customer base -- see Inc. or Alphabet Inc. (Google) -- but many of today’s service jobs are done directly for consumers. They’re in-person and inherently local. Physical therapists and personal trainers can’t telecommute. That makes where people live all the more important to their incomes.

Economists worry that Americans are not moving to where their skills are most in demand. Migration rates have been dropping since the 1980s. The states with the highest incomes also used to have the fastest-growing populations, as Americans moved to places with better jobs. That’s no longer the case. Workers seem stuck.

“The interstate migration rate is half of what it was in 1980,” says Janna E. Johnson, an economist at the University of Minnesota’s Humphrey School of Public Affairs. One factor appears to be the high cost of housing in the most productive parts of the country. Another is the spread of occupational licensing.

About one in four Americans work in jobs that require licenses, up from a mere 5 percent in 1950, and the requirements continue to expand to new occupations. Each state determines its own licensing requirements, so a licensed professional in one state may find it hard to move to another. “A licensed public schoolteacher with a decade of teaching experience in New Hampshire is not legally allowed to teach in an Illinois public school without completing significant new coursework and apprenticeships,” write Johnson and her Minnesota colleague Morris Kleiner in a new working paper that tries to tease out how much licensing limits mobility.

It’s a tricky problem. For starters, notes Johnson, moving “is a pretty rare event.” Only about 2.5 percent of the population moves between states in a given year. So you need a large dataset to do statistical analysis -- and an especially large one to break down migrants by occupation. The economists used the Census Bureau’s American Community Survey, which contains detailed migration and occupation information on more than 15 million people. It records moves both across state lines and within states and further distinguishes between people who moved within the same local area and those who moved between different areas in the same state. 1  

The intrastate distinction helps get around another problem. If your job depends on a network of clients, as many licensed jobs do, it’s hard to move, regardless of legal requirements. Some years back, a contractor doing work in my Los Angeles condo voiced envy at the life of a cousin in Arlington, Texas, midway between Dallas and Fort Worth. There, he said, “You can buy a million-dollar house for $200,000.” He’d like to move, he said, but all his customers were in Southern California. It would be too difficult to start over. A new license was the least of his worries.

So Johnson and Kleiner checked for differences between migrants who moved between adjacent areas, where they could still serve their established clientele, and those who moved farther within the same state, keeping their licenses but losing their customers. They then tested the effects of two different kinds of licenses: those that require the same national exam, and those that require a state-specific test. (They looked only at occupations that require licenses in all 50 states.)

They found that national tests don’t limit mobility, while state ones make a big difference. “Individuals in licensed occupations with state-specific exam requirements move at a 31 percent lower rate between states than those with national exams,” the economists write. But a local customer base also matters: “They also move far within a state at a 15 percent lower rate, which is evidence that clientele and network-based aspects of these occupations may play a significant role in limiting migration.”

Public policy reforms can’t do much to help hairdressers or real-estate agents build new client networks. But national tests and state compacts for reciprocal licensing could make it easier for them to move. In fact, the licensed professions whose mobility is dampened most by state-specific tests -- teachers and pharmacists -- rarely depend on individual clients. They’re hired by institutions.

The good news is that making licenses more portable and limiting the fields that require licensing enjoys bipartisan support. During the Obama administration, Michelle Obama and Jill Biden championed an effort to make it easier for military spouses, who move every two to four years, to take their licenses with them. When he was governor of Indiana, Vice President Mike Pence vetoed bills that would have required diabetes counselors, anesthesiologist assistants and dietitians to hold state licenses. The conservative American Legislative Exchange Council, an organization of state legislators, supports model legislation to limit licensing, while the center-left Brookings Institution has made licensing reform part of its social-mobility research.

The Federal Trade Commission is examining licensing’s anti-competitive effects, and encouraging reform. In the past year, it has stepped up those efforts. In July, the FTC hosted a roundtable on streamlining licensing across state lines. “Even when the underlying standards to obtain a license in a particular profession are similar across the country, the process of getting a license in another state can be slow and burdensome and costly,” said acting FTC Chairman Maureen K. Ohlhausen. 2  

There’s good reason for the growing consensus. You don’t have to be skeptical of licensing in general to question why electricians, hairdressers and pharmacists can’t take their licenses with them when they move -- or why it’s easier for a physician, nurse or accountant than for a schoolteacher. Health and safety don’t change at the state line. Licensing laws should recognize that.

  1. The technical term for these areas is Public Use Microdata Areas, or PUMAs for short.

  2. Originally appointed by Obama, Ohlhausen has worked at the commission under presidents of both parties, going back to 1997.