A surprising way states can boost a weak labor market 

After the controversial firing of Erika McEntarfer, who served as commissioner at the Bureau of Labor Statistics, the release of the August jobs report was hotly anticipated. With that data now in hand, it certainly seems like the commissioner was not the reason for the weak labor market. The report brought even more bad news than expected. 

Behind the headline-grabbing increase in the unemployment rate to 4.3 percent, what’s most troubling is a longer-term trend of declining labor force participation. There are almost 3 million fewer people actively seeking employment than there were this time last year; this translated into both a lower labor force participation and lower employment-population ratio.

Federal policy is a mixed bag. High tariffs — and even worse, the uncertainty surrounding the policy — are certainly not helping the U.S. labor market. On the positive side, efforts to cut unnecessary regulation represent a welcome change that helps to buffer some of the declines. 

Despite the mostly gloomy news nationally, there are many states that stand out with healthier labor markets. South Dakota’s unemployment rate is less than half the national average, at 1.9 percent. North Dakota, Vermont, Hawaii and Montana are also below 3 percent. 

Each of these five states is unique, but one characteristic that they share is that they fall in the bottom half of occupational licensing burdens nationally, according to the Archbridge Institute’s State Occupational Licensing Index report, which I co-authored. 

Occupational licensing makes it illegal to begin working in a profession before meeting state-mandated requirements like minimum levels of education and training, passing exams, and paying fees to the state. Americans may want our doctors and dentists to be licensed, but we find that there are at least 28 occupations that are licensed in as few as five states. Lactation consultants, interior designers and dance therapists are just three examples of professionals that most states don’t license.

Why might less burdensome occupational licensing be associated with a stronger labor market? Economic research has documented that tough occupational licensing reduces labor supply by as much as 27 percent.

Intuitively, it makes sense that there should be such a connection. If the state creates arbitrary barriers for individuals to begin working, fewer people are going to work. At the very least, individuals will not reach their true potential and might find themselves underemployed. 

The need for occupational licensing reform has emerged as a nonpartisan issue. Presidents Barack Obama, Joe Biden and Donald Trump have all expressed a need to address occupational licensing. State governors on both sides of the aisle, such as Pennsylvania’s Josh Shapiro and West Virginia’s Patrick Morrisey, have already implemented important reforms. 

If states are looking to help jumpstart their lagging job markets, eliminating unnecessary licenses would be a great start. The District of Columbia, Louisiana and Nevada are the only three jurisdictions nationally to license interior designers, for instance. It doesn’t make sense to make it unnecessarily harder for people to get started on a career, or mandate training when it isn’t correlated with better outcomes for consumers, and might even disproportionately harm select groups. 

States should roll out the red carpet for licensed and qualified workers to work across state lines. Twenty-eight states have already implemented a reform that lifts such barriers. Many states and jurisdictions with some of the worst unemployment rates nationally, such as Washington, D.C., California, Michigan and Oregon, have not lifted them. And that is telling.  

State policymakers largely cannot control what happens in the White House and Congress. But they do have the power to make a meaningful difference in the health of their respective labor markets. Meaningful occupational licensing reform can make that real difference, and it won’t cost taxpayers a dime. 

Edward J. Timmons, Ph.D., is a senior fellow with the Archbridge Institute and has written extensively on the effects of occupational licensing.