Crises and Opportunities for Occupational Licensing Reform

Crises and Opportunities for Occupational Licensing Reform

During a crisis, good ideas that were either unpopular or failed to attract public interest in normal times can be rebranded and repurposed to address a specific shock to the system.

Natural disasters, such as hurricanes, provide an excellent example of this dynamic. Access to basic necessities becomes a serious concern and the demand for labor to repair the damage skyrockets. Some states have responded to this by relaxing occupational licensing requirements during times of crisis to the benefit of disaster-stricken areas, as Jonathan Williams of the American Legislative Exchange Council (ALEC) argues in Washington Examiner:

The good news is that many states have learned from past mistakes and have adopted innovative policies. In fact, more than 25 states have adopted laws that now make is easier for disaster relief workers to avoid government bureaucracy during those critical days and weeks following a tragedy…

But by bringing additional resources into a state, an out-of-state company could subject itself and its employees to state or local business licensing or registration requirements, as well as state and local taxes and fees. This includes unemployment insurance taxes, state and local occupational licensing fees, sales and use taxes, and ad valorem taxes on equipment used or consumed during the disaster.

ALEC has written up model legislation for states to use (the model also focuses on local taxes and other rules not related to occupational licensing), stating:

An Out-of-State Business that conducts operations within the state for purposes of performing work or services related to a Declared State Disaster or Emergency during the Disaster Period shall not be considered to have established a level of presence that would require that business…be subject to any state licensing or registration requirements [including] state or local business licensing or registration requirements [and] state or local occupational licensing fees[.]

The model is focused on out-of-state businesses, but could be generalized to within-state firms or workers during a period of crisis. Indeed, Florida followed this model after the destructive 2004-05 hurricane seasons with positive results, as David Skarbek found:

Licensing is typically justified on the grounds that market mechanisms will not mitigate the problems associated with asymmetric information. In the wake of Hurricanes Frances and Katrina, Florida reduced restrictions on construction contractors, yet in times of crises informational asymmetries are more likely to be problematic. By examining the volume of work completed, I find little evidence of significant detrimental effects from the policy change. Given the relative success of reducing restrictions and the government’s explicit recognition of licensing’s limiting effect on the availability of roofers, reform of licensing, at least to the extent done in crisis, should be adopted permanently.

Even in this instance, where the case for occupational licensing is the strongest (during a hurricane, it’s easy to imagine some unscrupulous contractors taking advantage of a distressed homeowner), deregulation was a success story.

Though Williams and Skarbeck are more focused on temporary regulatory relief, the positive results of deregulation during times of crisis, in addition to providing the obvious benefits of immediate assistance to struggling storm victims, provide more data to support a broader case for licensing reform.

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By |2018-09-21T12:04:27-07:00September 21st, 2018|Blog, Occupational Licensing|