Maryland Should Reform Its Occupational Licensing Regime

This week, the Mercatus Center at George Mason University published a new study titled “Changes in Occupational Licensing Burdens across States.” Authors Matthew Mitchell and Anne Philpot used data from 2012 to 2017 to measure the breadth – the number of occupations that each state licenses – and the burden – the stringency of occupational licensing requirements in each state – to determine how occupational licensing has changed over the last five years. Unfortunately, Maryland had the greatest increase in the breadth and burden of occupational licensing over that span.

Maryland’s breadth and burden of occupational licensing increased 29% from 2012 to 2017 and the state regulates five more occupations than it did in 2012: animal breeders, athletic trainers, and three types of gaming occupations. Maryland's occupational licensing fees increased by an average of 6%, and the days lost to education and experience requirements by Maryland entrepreneurs increased by 3%.

As I wrote in a July 2015 blog, Maryland’s occupational licensing regime harms consumers by restricting competition, which subsequently leads to higher prices. Importantly, unnecessary occupational licensing harms the poorest residents in the state, who are unable to afford the fees and training required with such licensing, therefore stifling upward mobility for poor entrepreneurs. 

In the blog, I stated:

Because consumers ultimately pay higher prices as a result of the restricted competition, the increase in prices is disproportionately harmful to the poorest consumers. The higher a person’s income, the more willing that person is to adapt to price increases. Therefore, artificial increases in prices through occupational licensing have a large negative marginal impact on the poorest consumers. For example, pawnshops in Maryland, which can provide inexpensive goods, additional income, or short-term loans to poor individuals, are charging higher prices and interest rates than they would be able to charge if workers were not required to have an occupational license.

But the poorest individuals also experience the greatest burden on the other side of the market – as workers. Poor people often do not have the resources to acquire the mandated training, take the required tests, or pay for the licensing fees. This pushes them out of a labor market in which they may be skilled enough to compete. For example, a licensed plumber in Maryland must complete 3,700 hours in training. But a poor person with only 1,000 hours of training may be perfectly capable of fixing a toilet. It is not illegal for him/her to do so, but it is illegal to accept money for the service.

The Hogan Administration has done a good job reducing the overall burden of regulations over the last few years. As FSF President Randolph May and I noted in a January 2016 Perspectives from FSF Scholars, the Regulatory Reform Commission’s initial report recognized that Maryland’s occupational licensing regime was overly burdensome and was not protecting consumers. In a January 2017 Perspectives from FSF Scholars, we commended the Regulatory Reform Commission for identifying many occupational licenses that were unnecessary, outdated, or overly burdensome. And Governor Larry Hogan accepted all of the recommendations put forth by the Commission.

However, the data presented in the Mercatus Center study shows that there is more work to be done in Maryland. Although the 2018 legislative session has ended, occupational licensing reform should be a goal for the 2019 Maryland General Assembly. If Maryland wants to continue to produce economic growth and business investment throughout the state, it should lessen the burden of occupational licenses and enable more entrepreneurs to enter the labor market.

New FTC Task Force Will Focus on Occupational Licensing

The Acting Chair of the Federal Trade Commission (FTC), Maureen Ohlhausen, says that occupational licenses are a “particularly egregious example of this erosion in economic liberty” and she recently implemented a task force at the Commission to help reduce the burden imposed by occupational licenses.

In a speech at the George Mason Law Review’s 20^th Annual Antitrust Symposium, FTC Acting Chair Ohlhausen discussed how unnecessary occupational licenses can have a negative effect on consumers:

The public safety and health rationale for regulating many of those occupations ranges from dubious to ridiculous. Consumers can, and do, easily evaluate the quality of interior designers, make-up artists, hair-braiders, and others. I challenge anyone to explain why the state has a legitimate interest in protecting the public from rogue interior designers carpet-bombing living rooms with ugly throw pillows. Market dynamics will naturally weed out those who provide a poor service, without danger to the public. For many other occupations, the costs of added regulation limit the number of providers and drive up prices. These costs often dwarf any public health or safety need and may actually harm consumers by limiting their access to beneficial services.  

In response to the proliferation of unnecessary occupational licenses that has occurred throughout the United States, Acting Chair Ohlhausen created the Economic Liberty Task Force with a particular focus on occupational licensing regulations. The Task Force will work with Governors and state and local leaders to analyze how such regulations impact competition and consumer choice.

In a July 2015 blog, I specifically discussed how Maryland’s occupational licensing regime is harming poor people in two ways. First, the licenses restrict labor competition, harming poor entrepreneurs who cannot afford the mandated training and licensing fees. Second, the reduction in labor competition increases prices that disproportionately harm the poorest consumers. Of course, occupational licensing harms all consumers with higher prices and lower productivity because the barriers to entry created by licenses discourage competition from outside entrepreneurs.

Moreover, the Obama Administration published a July 2015 report entitled “Occupational Licensing: A Framework for Policymakers” which said that “by one estimate, licensing restrictions cost millions of jobs nationwide and raise consumer expenses by over one hundred billion dollars.”

Thank you to FTC Acting Chair Maureen Ohlhausen for creating the Economic Liberty Task Force. Hopefully, Maryland and other states will work with the Task Force to reduce the overall burden of occupational licensing.

San Francisco Voters Reject Airbnb Regulation

On Tuesday, November 3rd, voters in San Francisco rejected the city’s Proposition F, also known as the “Airbnb Initiative,” which would have limited short-term housing rentals to 75 nights a year. Airbnb spent roughly $8 million on organizers and advertisements to defeat the initiative.

Christopher Nulty, a spokesman for Airbnb, said: “This victory was made possible by the 138,000 members of the Airbnb community who had conversations with over 105,000 voters and knocked on 285,000 doors. The effort showed that home sharing is both a community and a movement.”

The price of housing in San Francisco continues to rise rapidly. Proposition F was initiated because policymakers are blaming Airbnb for housing shortages and high rents. However, Airbnb is not the cause of either of these things.

Jared Meyer, Fellow at the Manhattan Institute, wrote a Forbes article where he explains why politicians in San Francisco, not Airbnb, created housing shortages:

San Francisco, where rents for a one bedroom apartment frequently exceed $4,000 per month, has the most serious housing shortage in America. Over the past 20 years, San Francisco only permitted the construction of an annual average of 1,500 housing units. Over that time, San Francisco’s population grew by 97,000. From 2010 to 2013 it grew by 32,000.

According to a Trulia study that examined housing production from 1990 to 2013, San Francisco had the highest median prices per square foot and the lowest rate of new construction permits among America’s ten largest tech hubs.

Nearly 80% of San Francisco’s housing is occupied by rent-controlled tenants or homeowners. This leaves only one in five housing units available for other renters, artificially driving up rents.

Additionally, the booming, high-salary tech industry represents about 8% of the workforce in San Francisco, putting further upward pressure on the price of housing in an already overburdened market. This is why some blame tech workers for the city’s housing shortage. Their solution is for tech companies, such as Google, to create more housing for employees on company property. Although this seems to be a logical proposal, the city of San Francisco explicitly forbids it.

San Francisco, unlike many other major U.S. cities, has building permits that are discretionary rather than as-of-right. This standard makes it more difficult to gain approval for development. For new housing developments in San Francisco, there is a preliminary review, which takes six months. Then there is a chance that neighbors will appeal the permit on either entitlement or environmental bases. These barriers add unpredictable costs and years of delays for developers, the costs of which are ultimately passed on to buyers and renters.

If there is an actual shortage of long-term housing, then it is necessary to allow housing permits to meet this demand, but local California governments stand in the way.

By creating costly regulations and limiting short-term rentals, the "Airbnb Initiative" would have put even more upward pressure on housing prices in San Francisco. Thankfully, voters rejected this unnecessary regulation and now consumers and home owners can continue to benefit from the innovative services offered by Airbnb and other home sharing platforms.