Because each state government establishes its own licensing laws, the number and intensity of licensing requirements often vary from state to state, even for the same occupation. Texas has 49 state licensing boards (PDF), the second-highest number among states.

A 2017 study from the nonprofit Institute for Justice found that Texas licenses some occupations that are rarely licensed in other states, including locksmiths and weighers of bulk commodities such as feed and grain. The institute found that 14 states don’t license security alarm installers, yet entering this occupation in Texas requires more than two years of experience, $462 in fees and an exam.

Texas also imposes stiffer entrance requirements on some occupations than on others that seem to present a greater risk to public safety. For instance, at the time of the Institute for Justice study, acquiring a cosmetologist’s license in Texas required “approximately 350 days or 1,500 hours of education,” versus about 35 days or 150 hours to become an emergency medical technician.

While Texas earns generally high ratings for economic freedom, its extensive licensing system may prevent the state from realizing its full potential for business and job creation. A 2018 report released by the Commission to Study and Review Certain Penal Laws, created by the 84th Legislature, concluded that Texas’ occupational licensing laws reduce employment by 140,000 jobs and cost the state economy $431.5 million annually.

Economic Costs and Labor Market Consequences

Policymakers in several states have questioned the need for extensive licensing requirements.

Fundamentally, of course, licensing restricts who can take what job. It leaves a large share of jobs — many of them relatively well paying — open only to those with the time and means to complete what can often be lengthy and expensive requirements. In fact, for 37 low- to moderate-income occupations studied by the Institute for Justice, an aspiring Texas worker must spend an average of 341 days in training and $253 in fees to obtain a license.

Licensing thus tilts the economic playing field by steering workers into jobs that are more accessible but lower paying. Workers who can obtain a license benefit from monopoly-like effects, including reduced competition as well as higher wages.

Occupational licensing, moreover, is highly state-specific. According to the National Conference of State Legislatures, of 1,100 occupations licensed in at least one state in 2016, fewer than 60 were licensed in all states. And the specific requirements for licenses vary widely. This phenomenon, sometimes called “job lock,” makes it difficult for workers to seek jobs in other states. According to the National Bureau of Economic Research, interstate migration is 36 percent lower among licensed workers than for members of other occupations.

It’s also important to note that increasing numbers of licensed occupations typically drive up prices for consumers and the wider economy. A 2015 White House report indicated that licensing causes prices for goods and services to rise by anywhere from 3 to 16 percent.

Licensing Revenue

Senate Bill 2065, approved in 2017, asked the Comptroller’s office to compile an annual report (PDF) on “all occupational licenses, including permits, certifications and registrations, required by this state,” as well as the revenues generated by these requirements. The resulting study received information on 779 occupational credentials issued by state entities, although some were unable to differentiate their fee revenue by type. The 10 credential types producing the greatest revenue in fiscal 2017 are listed in Exhibit 3.

EXHIBIT 3: OCCUPATIONAL REGULATION REVENUE REPORTED BY STATE ENTITIES, TOP 10 TYPES,
FISCAL 2017

*Includes revenue generated from license issuance and renewal, and may include fees that cannot be separated from licensing fees (such as fees for a change of name or location on a license).
**The board could not separate fees for these two types.
Source: Texas Comptroller of Public Accounts

Note again that, in accordance with SB 2065, the data include actual licenses as well as certifications and other less-restrictive forms of regulation; and that the Comptroller’s office compiled but did not verify the information reported.

Even so, these partial figures demonstrate that, while occupational regulation can impose a burden on workers and consumers, it also represents a fairly significant revenue source.

Deregulation in 2017

Texas has taken strides in recent years to eliminate or reduce its licensing requirements.

Texas’ 85th legislative session, in 2017, marked the largest deregulation effort in Texas history. Lawmakers abolished a number of licenses, perhaps most notably the one to shampoo hair (Exhibit 4). Agencies reported the elimination of 26 credential types to the Comptroller’s office.

Texas’ deregulation efforts influenced national policy in 2018, when Congress overwhelmingly approved Texas Sen. John Cornyn’s New Hope and Opportunity through the Power of Employment (New HOPE) Act. The act allows states to use existing federal funding to identify and consolidate or eliminate licensing requirements that impede job creation.

EXHIBIT 4: STATE-ISSUED OCCUPATIONAL CREDENTIAL TYPES ABOLISHED BY THE TEXAS
LEGISLATURE IN 2017*

*As reported to the Comptroller’s office pursuant to SB 2065, 85th Session.
Source: Texas Comptroller of Public Accounts

2019 Legislative Session

Before the 86th legislative session, the Commission to Study and Review Certain Penal Laws recommended that Texas simplify its licensing requirements, change violations of those requirements from criminal to civil penalties and enforce the penalties only if a license-holder knowingly breaks the law.

In this year’s session, dozens of bills concerned occupational regulation. Perhaps the most noteworthy were two new laws directly based on the notion that overly tight licensing requirements can threaten the livelihood of economically vulnerable workers.

SB 37 prevents Texas agencies from denying or suspending an occupational license if the license-holder defaults on a student loan. A 2018 Texas Tribune investigation found that “more than 4,215 people in the state — including security guards, cosmetologists and pharmacists — were at risk of losing their license because of student loan default in 2017.”

House Bill 1342 is intended to help those with arrest or conviction records — a group including four of every 10 Texans, according to the American Civil Liberties Union — obtain occupational licenses. Under this new law, convictions within the past five years for offenses unrelated to the licensed occupation may no longer serve as grounds for disqualification.

The licensing story receiving the most media coverage in 2019, however, concerned a recommendation from the Sunset Advisory Commission to transfer the duties of the Texas State Board of Plumbing Examiners to the Texas Department of Licensing and Regulation, and to eliminate some regulatory requirements on the profession. A pair of bills that would have saved the existing board failed to pass before the Legislature adjourned. Gov. Greg Abbott, however, issued an executive order extending the board and its current duties at least until 2021, citing the urgent need for trained plumbers to continue Hurricane Harvey recovery efforts.

More to Come?

Some states are taking a harder look at the necessity for extensive occupational licensing. In April 2018, Nebraska’s governor signed a law that will subject all of the state’s 170+ occupational licenses to a sunset review process; similar legislation has been proposed in several other states. A 2018 study by the Arkansas Center for Research in Economics (PDF) reported that at least five states have eliminated some licenses since 2016, while several others have taken steps to make their licensing requirements less onerous.

As the economic costs of this form of regulation continue to be better understood, it seems likely that more of Texas’ hundreds of occupational licenses will be subjected to legislative scrutiny. FN