Occupational Licensing in California

Arbitrary, Protectionist and Unnecessary

Introduction
Over two million Californians must apply for permission to work in over 200 occupations from one of 42 government bureaus and boards. In the process, job seekers may have to spend thousands of dollars and spend years in government-mandated classes. And that’s just to become a tree trimmer.

The Golden State has long been a sought-after destination for those who want to make it in America. A culturally diverse state with majestic forests, sunny skies and world famous beaches, California’s economy has long been one of the largest on the planet. Unfortunately, California also has one of the most extensive regulatory systems in the country, and its stratospheric tax rates are as famous as its landscape.

California’s income, sales and corporate tax rates are among the highest in the country. The Mercatus Center recently ranked California 49th in terms of economic freedom and 50th in regulatory freedom, finding that “California not only taxes and regulates its economy more than most other states, but also aggressively interferes in the personal lives of its citizens.”

Likewise, a spring 2013 report by the Kauffman Foundation, which surveyed nearly 8,000 small business owners nationwide, rated California a “D” in terms of overall business friendliness and an “F” in for its tax code and regulatory hurdles. A transportation company owner who participated in the survey described the business environment in particularly negative terms: “Too many agencies to deal with. Agencies nickel and dime you to death—the paperwork gets quite burdensome.”

This elaborate web of taxation and regulation, according to a 2009 study by researchers at California State University, Sacramento, costs the California economy approximately $492 billion. Taken together, these policies fuel a continuing high net-migration out of the state, and have contributed to a high rate of unemployment and underemployment (18.8% as of April 2013).

Among the countless regulations that restrict and restrain entrepreneurs and job seekers alike is the practice of occupational licensing. While all states require government licenses to work in certain occupations, California leads the nation in terms of how many occupations it licenses and the extensiveness of requirements to obtain licenses. Reviewing the practice of occupational licensing in California, a few issues become clear: licensing in California is arbitrary, particularly onerous, and ultimately unnecessary.

Occupational Licensing in California
The state of California, through the Department of Consumer Affairs (DCA), spends a quarter of a billion dollars annually to regulate and license over 200 occupations ranging from tree trimmers to animal trainers to doctors. Funding comes from the litany of fees and citations issued by the licensing boards, and significant portions of licensing board budgets are directed toward enforcement (e.g. audits, sting operations) of board policies. Licensing generally requires submitting fingerprints, paying various application fees, and documentation of fulfilling certain educational and/or work experience explicitly outlined by board policies. For some occupations, the educational and work requirements may take years and thousands of dollars; for others, individuals may just need to submit fingerprints and a fee.

The mission statements of California occupational licensing boards suggest that their existence is essential to the health and safety of Californians. The Contractors State License Board (CSLB), which issues 43 different licenses, claims it “protects consumers by regulating the construction industry through policies that promote the health, safety, and general welfare of the public in matters relating to construction.” Similar language is used by other licensing boards, such as the Board of Barbering and Cosmetology, which claims to “ensure the health and safety” of Californians by “enforcing the laws of the beauty industry.”

There are also Boards that apparently exist not for public safety considerations, but instead for the purposes of ensuring the “highest quality professional services,” as is the case with the Court Reporters Board of California. Whereas fewer than half of all states require licenses to be a court reporter, California mandates licensure and certification. As a requirement for the licensing examination, aspiring court reporters must be certified by or have a Certificate of Merit from the National Court Reporters Association (NCRA). The NCRA is a national, private association of professional court reports, and has been issuing certification to court reporters since 1937. In 22 states, certification from the private NCRA is accepted in place of state licensing or certification exams. States such as Colorado and Alaska don’t require any form of certification. As will become increasingly clear in this discussion, for most of the professions that California licenses through one of its occupational boards, there exist private certification associations that can and have been administering and bestowing certification and education for those who seek it.

It should be noted that none of this means that an unlicensed market necessarily entails an increased number of unqualified persons suddenly being hired. Like every other private sector job, employers have every incentive to ensure that prospective employees are qualified and that employees are doing their jobs up to their expectations.

The Arbitrariness of Licensing
Reviewing California’s licensing requirements in relation to other states reveals that there is a high degree of arbitrariness to which occupations require government permission.

A 2007 Reason Foundation study found grossly disparate numbers of occupations requiring government licenses, even among bordering states. California was found to require licenses for 177 occupations, far more than Arizona (72), Nevada (95), and Oregon (107). Of these, only 46 occupations require licenses in all four states. More than 100 of the 177 occupations California required licenses for in 2007 were licensed in fewer than half of all states. The average number of occupations licensed for all states in 2007 was 92, though states ranged from as little as 41 (Missouri) to California’s 177.

The Institute for Justice conducted a more recent review of occupational licensing in 2012, which reviewed 102 “low- and moderate-income occupations,” defined as occupations with incomes below the national average, and the nature of licensing in all 50 states and the District of Columbia. California licenses 62 of the 102 occupations reviewed by the Institute for Justice, and as “the second most broadly and onerously licensed state in the country” required an average of $300 in fees and 549 days of education and/or work experience to acquire a license.

To take an example, California is among only 15 states that license locksmiths. California law currently makes it a misdemeanor to work as a locksmith without a license, punishable by up to a year in jail and/or a $10,000 fine. California currently requires locksmiths to submit fingerprints and pay various fees. Individuals wishing to start up their own locksmith company must not only pay higher fees, but may be subjected to the extensive contractor requirements should they wish to pursue projects in excess of $500. Unlike many other occupations licensed by California, there are no training, educational or certification requirements for locksmiths. In other words, locksmiths in California really are just paying the government for permission to work.

Given that the majority of states do not require individuals to seek permission to be a locksmith, and that California’s licensing requirements aren’t even tied to experience or education, the value of locksmith licensing requirements makes little sense.

Licensing Doesn’t Equate to Better Service
A common argument in support of licensing is that licensing serves as a means of quality control. Having individuals jump through hurdles, the argument goes, ensures that only truly qualified individuals work in certain professions. The problem with this argument is that it isn’t particularly supported by evidence. While research into the impact of licensing requirements on quality of service is limited, the research that is available provides a mixed picture of how licensing requirements influence quality of service.

As summarized in Table 2 of Adam Summers’ report on occupational licensing, of the fifteen studies (fourteen American, one Canadian) conducted on this subject, only one found that licensing (of dentistry) had a positive impact on quality. Meanwhile, eight found no effect of licensing on quality, while six found a negative effect on quality. This is in part due to the restraint on competition that licensing entails. By putting more burdens on individuals and businesses, fewer people will be expected to enter an occupation requiring licensure. As a consequence of reduced competition and consumer choice, the prices of services go up.

A 1990 study of occupational licensing for the Federal Trade Commission concluded that licensing contributed “little, if any, quality enhancement” and that “consumers are not necessarily better off” if licensing does enhance quality, as licensing is associated with higher prices. In further support of this latter claim, Table 3 of Adam Summers’ report lists 15 studies (thirteen American, two Canadian) that looked into the effect of licensing on prices. Thirteen definitively found price increases associated with licensing.

These price increases have significant predictable consequences. First, while it is illegal to hire unlicensed contractors for landscaping or homebuilding, people often do so in order to save money. Turning to the black market exposes consumers to potentially harmful practices with minimal legal protections. Second, as the 1990 FTC report indicated, consumers may be more likely to attempt “do-it-yourself” jobs. Higher electrical licensing requirements, according to the report, have been correlated with higher rates of electrocution as more individuals attempt to perform their own work.

Stifling Entrepreneurship
California’s restrictive and onerous contractor licensing requirements, according to CSLB, “is part of California’s estimated annual $60 to $140 billion dollar underground economy.”

Working on a project "for which the combined value of labor, materials, and all other costs" exceeds $500 requires a contractor’s license. California law expressly forbids any attempt to break down a larger project "to smaller amounts of less than $500" in order to meet this exemption and be able to work without a contractor’s license. The CSLB licenses 300,000 contractors in California, with licensing classifications including landscaping, drywall installation, painting and roofing.

To apply for a contractor’s license, individuals must have more than $2,500 worth of operating capital (defined as assets minus liabilities), submit an application along with $300, as well as at least four years of experience. To meet this four-year requirement, individuals may take three years of schooling, followed by one year of work experience under the supervision of a CSLB-approved contractor. Once applicants meet this requirement, they must submit fingerprints for a background check. Applicants must disclose any criminal history, even if the record was sealed, expunged or reduced; failure to do this is grounds for being rejected at this stage. Applicants then must take two exams: a Law and Business examination, and an exam covering the specific classification being applied for. There are hundreds of dollars’ worth of fees throughout this process. For example, in 2012 Tree Service (tree trimmer) applicants had to pay an average of $851 in fees. Once the license is issued (at a cost of $180), contractors must abide by other requirements, such as acquiring insurances and bonds. This is just the licensing part, and speaks to no other regulations, insurances, permits and certifications they may need.

These contracting requirements place heavy burdens on occupations ranging from tree trimming (which only six states license at all) to mobile home installers (which 12 states don’t license at all). These burdens make little sense given that many states simply don’t require licensing for many of the 43 classifications that fall under the jurisdiction of the CSLB. With such extensive standards, individuals and businesses with the means and time to meet these requirements have significant protection from competition, as many individuals may simply find themselves overwhelmed by licensing requirements.

Adding to this, there isn’t a mechanism to review whether or not the state of California needs to be issuing licenses or whether or not public safety is truly improved by CSLB policies.

California currently licenses over 100,000 “General Building Contractors.” Approximately a dozen states, including Texas, Colorado, and Illinois, do not require a state-issued license for general contractors. There is no evidence one way or another indicating that licensing requirements have improved quality in the general contracting profession or that consumers are protected by the requirements. As an indirect measure, the 2010 sunset review report of the CSLB, which never addresses whether or not consumers are actually protected or if the quality of the industry improved by its existence, provided the number of complaints it received between 2006 and 2010. When examining how many complaints the CSLB received regarding competence, unprofessional conduct, fraud, personal conduct, and health and safety, it appears that the CSLB isn’t particularly protecting consumers. Between 2006 and 2010, overall complaints from these categories went from 13,206 to 12,979; with increases in complaints pertaining to unprofessional conduct, fraud, health and safety, and personal conduct in that time period.

Criminalization of Economic Activity
A persistent argument in favor of licensing is that the oversight provided by government licensing boards protects consumers from scammers and criminals in general. This ignores the reality that fraud and violations of contracts are already against the law. Enforcing existing laws would more than suffice in protecting consumers from those who wish to do them harm.

Like other prohibitions, laws prohibiting working in certain occupations without government permission have served only to criminalize large numbers of people who choose to work unlicensed. A 2007 San Francisco news station review of locksmiths in the city phone directory revealed that only 7% of the locksmiths were licensed. While California lawmakers interpreted this as evidence that larger fines were necessary, these numbers also reveal how many people are willing to ignore licensing requirements, perhaps because the burden is already too high. Effectively, such regulation unfairly forces low-income businesspeople out of the market and protects existing businesses against fair competition.

The extensive licensing requirements push many into working “under the table.” The CSLB spends a significant portion of its $50 million budget on enforcement of its licensing requirements. Tree trimmers (referred to on the CSLB website as Tree Service Contractors, classification D49) who are willing to accept projects worth more than $500 must apply for this extensive licensing, despite the fact that few states regulate this industry. The CSLB website features several press releases lauding the results of sting operations against unlicensed tree trimmers.

The CSLB enforcement investigators often go through websites like Craigslist to find unlicensed tree trimmers offering to work; the CSLB then arranges sting operations and issues Notices to Appear to answer for misdemeanor charges of working without a license and “illegal advertising.” In 2010, one sting operation netted 161 unlicensed contractors, with CSLB investigators posing as homeowners who were accepting bids for work including tree trimming, landscaping and painting. The press release referred to one “Freebie” who “showed up at the front door with a flyer” and asked, “if they had any tree trimming or landscaping they needed done.”

One 72-year old suspect caught in the sting operation is reported to have said he’d “had it with California and is moving to Florida.” Another “asked why he was called again since he'd been caught before.”

First time violators face up to six months in jail and/or a $5,000 fine; a second violation comes with a 90-day mandatory jail term.

Licensing Boards Can (And Do) Get It Wrong
Acupuncture is currently licensed in 44 states and the District of Columbia. Acupuncture in the remaining six states is a legal grey area; and four only explicitly give medical doctors, chiropractors, podiatrists and/or individuals under the direct supervision of medical doctors permission to engage in acupuncture. Two, Wyoming and North Dakota, don’t regulate acupuncture at all. A 2004 bill to license acupuncture in North Dakota failed to gain traction, as there were only three practitioners in the state, and there did not appear to be any pressing need to regulate acupuncturists. Similar efforts to license acupuncture in Wyoming have similarly failed to get anywhere, to no apparent detriment to the health and safety of consumers.

The centralization of power over granting occupational licenses puts a significant responsibility on regulators to make appropriate judgments. The California Acupuncture Board (CAB) serves as an example of how fallible government regulators can be. California is unique in regulating acupuncture in that, unlike any other state, it writes its own licensing exam and sets its own educational standards. As complicated as regulating acupuncture might be, other states have at least realized that non-governmental, private organizations can effectively set standards. The Accreditation Commission of Acupuncture and Oriental Medicine (ACAOM) is recognized as a national accrediting agency in the fields of acupuncture and oriental medicine. Whereas most states allow aspiring acupuncturists who received accreditation from an ACAOM-approved school to take state licensing exams, California does not recognize ACAOM accreditation, and sets its own acupuncture education standards. As a consequence, according to the CAB website, “California does not recognize out-of-state licensing for practice in this state.” California is the only state that issues a state-generated exam, independent of the quality controls that the national ACAOM sets. This protectionist policy makes it difficult for out-of-state acupuncturists, with nationally valid certification, to compete in California, thereby restricting consumer choice.

The CAB was created in 1999 and sunrisen until 2002, at which point the independent state oversight agency called the Little Hoover Commission (LHC) was tasked with reviewing the CAB. In 2004, the LHC came back with its findings, and noted that it was asked to review the CAB because it “too frequently acted as a venue for promoting rather than regulating” the occupation of acupuncture, and had not “adequately incorporated emerging scientific evidence into board policies, regulations, and public communications.” As a result, both the private National Guild of Acupuncture and Oriental Medicine (NGAOM) and the federal National Center for Complementary and Alternative Medicine (NCCAM) have repeatedly contacted the CAB for inappropriate standards and making inaccurate scientific claims.

A March 2012 Background Paper prepared by the Senate Committee on Business, Professions and Economic Development reported ten persistent issues that the CAB still faces. One major concern was with California’s unique examination requirement and the persistent problems with its application. For example, California issues exams twice a year in English, Chinese and Korean. Translating the exams appropriately has been an issue for the CAB. From 2007–2010, applicants using the Korean-language licensing exam had pass rates from 66%-74%. However, in an exam administered in 2011, this dropped to 30%, due to the misconception on the CAB’s part that “Korean-speaking acupuncture students were taught in Chinese” and consequently “the exam was not translated into Korean in its entirety,” with many sections in Chinese. This issue was subsequently resolved, following significant outcry, and the Korean-speaking students were able to retake the exam without charge.

Another issue raised in the background paper was the existence of dubious Continuing Education (CE) requirements, with licensees required to take courses as a condition of maintaining their license. In 2010, the NGAOM challenged the CAB for approving classes “grossly out of compliance” with CAB’s regulations. The CAB has approved courses in astrology, numerology and mysticism as fulfilling CE obligations.

As the example of the bungled effort to regulate the occupation of acupuncture in California demonstrates, tying up an occupation with government bureaucracy isn’t exactly for the best. When government institutionalizes a profession, it is not only limiting competition, but it is also centralizing standards that may not make any sense and that are in stark contrast from what the private sector finds acceptable.

Challenges to Licensing in California
In 1997, the Institute for Justice filed a legal challenge with Dr. JoAnne Cornwell (a “locktician”) against the California Board of Barbering and Cosmetology due to the Board’s unnecessary licensing of African hairstyling, which consists of “twisting, braiding, weaving, and locking natural hair fashions, mostly for African-American clients.” African hairstylers in the state were forced by the Board to submit to its licensing requirements, which included nine months of costly cosmetology classes (averaging $5,000-$7,000), none of which taught African hairstyling. In 1999, a U.S District Court judge ruled that licensing requirements for African hairstylers “failed to pass constitutional muster" and struck down licensing requirements for African hairstylers. Today, African hairstylers are able to practice their craft in California without a license. To this author’s knowledge, California consumers haven’t had their health or safety compromised as a result. Should African hairstylers engage in hair dyeing or straightening, however, they must still submit to the burdensome cosmetology licensing regulations.

Years later, California mandated that individuals operating real estate advertising websites, regardless of which state they were based out of, obtain real estate broker licenses. In 2003, the Institute for Justice filed suit against the California Department of Real Estate on behalf of two Web-based companies challenging the law, which required up to two years of education and thousands of dollars in fees. In 2004, a federal judge in Sacramento struck down the licensing requirements against real estate advertising website operators.

Despite these cases, licensing is still the norm, and apparently considered a necessary state function.

Conclusions
California’s occupational licensing needs to be reviewed from a position of common sense. First, occupational licensing in California is arbitrary. The broad differences between California, its neighbors, and the nation as a whole suggest that California is licensing far more occupations than necessary. A tree trimmer who wishes to be competitive in California must divert years of their life and significant sums of money just to get permission from California regulators to make a living, while in most states this is not the case. As important as safety is in construction jobs, the extent of California’s regulation and licensing of contractors is unparalleled in other states.

Second, occupational licensing in California has a track record of serving to limit competition by making certain occupations available only to those who can afford it. Licensing requirements in California generally require individuals to have significant amounts of money and the time to invest in state-mandated education and work experience, including in many occupations for which these standards seem excessive. These demands are exceptionally onerous when one considers that not only are many of the occupations licensed in California unlicensed in most of the country, but California also places particularly stringent conditions on job seekers without any mechanism for ensuring that such regulations are necessary.

Third, government licensing may ultimately be unnecessary. With private certification organizations such as the National Institute for Automotive Service Excellence (which certifies 350,000 mechanics), Associated Locksmiths of America (ALOA; which certifies over 2,000 locksmiths), the National Board for Certification in Occupational Therapy, the National Court Reporters Association for court reporters, and countless others, it is unclear why permission from government licensing boards is necessary for many occupations. California already has consumer protection laws, long standing laws against fraud and theft, and there is nothing about the licensing boards that gives them any special authority in upholding the law, as ultimately they just refer cases to attorneys general. Further, with organizations such as the Better Business Bureau, and websites such as Ripoff Report or Angie’s List, consumers have greater access than ever to means of determining the quality of service for virtually any service provider they seek to hire.

The idea that individuals in the United States need permission from government to work (and need to pay for the privilege) is contrary to the tradition of economic liberty on which this country was built, especially when states can’t agree on which professions need such regulating. California’s egregious occupational licensing regulations show that at the very least, an occupation-by-occupation review is a reasonable approach to reform of California’s arbitrary and protectionist occupational licensing standards. The suggestion that the state is uniquely situated to set and maintain industry-wide professional and ethical standards ignores the reality that private certification boards can and do perform this funtion, as well as the fact that standards set by employers and consumers are ultimately what matter most.





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