A new report ranks Arkansas at No. 1 in the nation! Before we get excited and start calling the Hogs, I've got some somber news to share: it's not a sports ranking.
It's a ranking that should concern us. Just announced on March 20, the Archbridge Institute ranked Arkansas as the nation's most burdensome state in its State Occupational Licensing Index (SOLI), available at archbridgeinstitute.org. Let me explain what this ranking means for Arkansans and what we can do about it.
Experts in the field of occupational licensing legislation--economists Noah Trudeau and Ed Timmons-- investigated the rules for 331 occupations. That number of occupations is three times more than what was reviewed in a notable report by the Institute for Justice, which also ranked Arkansas very poorly.
Of the 331 occupations in this report, 212 have licensing barriers in Arkansas. The 212 occupations are more than any state and 18 percent more than the national average (179). Our northern neighbor Missouri creates licensing barriers for only 151 occupations of the 331. We are 40 percent more burdensome than they are. Our licensing rules are much more extensive than Mississippi too. They only have 164 barriers. Our state even regulates more occupations with licensure than the state governments in California and New York!
Should we be concerned about our extensive licensing rules? We can look at the literature on this subject to find out.
When a government regulates an occupation with licensing, it means that someone must get a license to legally practice that trade. Most occupations are not subjected to occupational licensing. We don't require a license to be an economist, a legislator, or a professor, but we do require a license to be a cosmetologist, a funeral director, or a massage therapist.
Economists have studied the effects of regulating with licensing instead of using a less-burdensome type of regulation such as voluntary certification or registration. Contrary to what you might think, consumers are not benefiting from licensing. The main beneficiaries are the incumbent professionals. Studies typically don't show an increase in quality of service received when an occupation is subjected to licensing regulation.
An extensive 2020 study by Chiara Farronato, Andrey Fradkin, Bradley Larsen, and Erik Brynjolfsson found that stringent licensing regulations were associated with less competition and higher prices, not improvements in quality. A 2022 study by Peter Blair and Bobby Chung found that licensing reduces the labor supply of an occupation by between 17 and 27 percent. A benefit from a lower labor supply is higher wages for the protected group, at the expense of those excluded from the profession. A notable 2013 study by Morris Kleiner and Alan Krueger found that licensing is associated with 18 percent higher wages in that occupation.
In short, licensing is designed to protect the current practitioners at the expense of consumers and potential practitioners. Is "limiting competition" something we want our state governments to do?
Some harm of licensing is indirect, but still real. Erecting barriers to work in a legal profession may incentivize people to choose an illegal profession. A 2018 study by myself and Saliou Ouattara found that higher state licensing burdens are associated with fewer people in the labor force and more property crime. This is especially true for the youth. The more we try to "protect" consumers with burdensome licensing rules, the more attractive we make criminal behavior.
Arkansas doesn't need to lead the nation with the most occupational barriers. We can simply get rid of some of the rules.
The Archbridge study noted two occupations that Arkansas regulates with licensure that 48 other states don't: Air Conditioning Electrician and Lead Abatement Contractor. We can de-license those and more. And we can stop adding more barriers. For instance, House Bill 1189 would create a new license for a behavior analyst. That would increase our total of licensed occupations.
What's one more license, after all? It's like adding that extra slice of cake to your diet. It won't hurt a lot. But when your caloric intake is already too high, the only way to improve your situation is to stop adding more and to start cutting. Sixteen states don't have a licensing barrier for a behavior analyst, and they are doing fine.
One positive step to reducing burdensome licensing is Senate Bill 90, which will lower barriers for licensed workers moving to Arkansas. That will at least lower the burden for currently licensed occupations. To get out of the No. 1 ranking, though, we can look at some of our neighbors and reduce our license burden to their level. That would be a start. How is it possible that Arkansas' Occupational Licensing Review Subcommittee didn't find a single license to eliminate in its latest report?
Let's lead the nation in sports, not in occupational barriers.
Thomas Snyder is a professor of economics, and an affiliated scholar for the Arkansas Center for Research in Economics at the University of Central Arkansas. The views expressed here are his alone and are not an official statement of UCA.