Rule Reversal: How the Feds Can Challenge State Regulation

An oft-repeated observation is that government works best when it is closest to the people. But when local and state governments are unduly influenced by special interests, the people may benefit from the checks and balances of the federal government. The Federal Trade Commission furnishes a striking recent example. 

Tasked with keeping American markets open and competitive, a large part of the FTC’s mission is to enforce the antitrust laws that prevent businesses from hurting consumers with anticompetitive practices. However, not all threats to a free and competitive economy come from the private sector. A new initiative by the FTC, the Economic Liberty Task Force, will combat excessive and anticompetitive occupational licensing regulations at the state and local levels.

Nearly one-fourth of American workers are required by law to obtain an occupational license to do their jobs. Ideally, licensing is a regulatory tool of last resort to be used when other approaches are insufficient to protect public health and safety. 

But licensing has become much more prevalent in recent decades, creating a patchwork of barriers to work that are often arbitrary, costly to workers and consumers, and bad at protecting public safety. Many states require licenses for activities with almost no public risk, such as flower arranging, auctioneering, tour guiding and interior decorating. A 2015 Obama administration report on occupational licensure found little evidence that licensing improved quality, and abundant evidence that it raises consumer prices.

The burden of licensing requirements falls especially hard on certain communities. Military spouses are likelier than the general population to work in licensed professions. Immigrants also face a higher burden, since many states require domestic work experience or education to obtain a license. And many states make it difficult or impossible for those with criminal records to obtain a license.

Despite an emerging cross-ideological consensus that occupational licensure is often unnecessarily burdensome, excessive licensure persists—and in many instances it is expanding in size and scope. This should come as no surprise: Many of the benefits of licensing accrue to well-organized groups of industry insiders, while the costs are more diffuse. These insiders are able to out-lobby the much larger group of consumers and aspiring professionals who bear the costs of licensure (often unknowingly) and who stand to gain from liberalization.

This is where the FTC task force comes in. Building on the FTC’s excellent work related to occupational licensing—including friend-of-the-court briefs, staff research and public statements during both Republican and Democratic administrations—the task force will provide a repository of research accessible to policy makers and the general public. The task force will also solicit reform ideas from a range of licensing stakeholders, using professional input to refine their approach. State and local policy makers often lack the time and resources to conduct their own in-depth analyses of licensing regulations and can benefit substantially from the hands-on assistance the agency will provide.

This assistance is all the more needed in light of the Supreme Court’s decision in North Carolina State Board of Dental Examiners v. FTC(2015). In that case, a state board controlled by practicing dentists attempted to bar unlicensed nondentists from whitening teeth. The FTC objected to this anticompetitive regulatory action and ultimately prevailed in the Supreme Court. 

Historically, certain state actions have been immune from antitrust scrutiny—i.e., if the state organizes the anticompetitive activity, it’s not illegal. In the North Carolina case, however, the high court held that if members of an occupation dominate a licensing board, then the state’s political branches must “actively supervise” the board in order to claim immunity. This decision has spurred policy makers everywhere to rethink licensing regimes and presents additional opportunities for FTC enforcement.

The new FTC initiative can help give a voice to the diffuse groups harmed by anticompetitive licensing regulations. And the Federal Trade Commission is uniquely positioned to tackle this issue, with its longstanding and bipartisan tradition of promoting competition, and a professional staff well-versed in the economic evidence. 

As a federal agency with broad responsibilities, the FTC is also less susceptible to undue influence than local regulatory boards, which tend to be dominated by the professions they regulate. For the sake of consumers and workers everywhere, we wish them luck.