Arkansas has been experiencing economic growth recently as the 2008 recession becomes part of history. But Arkansans need to remember that another recession will eventually come, and we need to prepare for it.
Our research shows one way to reduce the impact of a recession is to lessen the burden of occupational licensing laws.
Occupational licensing is the requirement that service providers meet a minimum set of qualifications before they open for business. According to the Institute for Justice, Arkansas already ranks as the state with the third most burdensome licensing laws in the country.
In an effort to protect the public from dangerous or fraudulent providers, licensing laws usually have requirements regarding training hours, test scores, fees, age restrictions, and criminal background checks. Sometimes the requirements are simple. For instance, security guards are required to have just six hours of training and one passed exam before they can begin work. Other times the requirements are more burdensome; a cosmetologist, for example, must complete up to two years of beauty school, pay $125 in fees, and pass two exams.
The differences in the stringency of the requirements are often hard to defend. For instance, Emergency Medical Technicians (EMT), who deal with life and death situations, require around a month of training before entering the field, which is a much lighter requirement than exists for cosmetologists.
Because of their restrictiveness, licensing laws have earned criticism in recent years. Opponents say that high licensing requirements make it so that people who would otherwise enter an occupation are discouraged from doing so, and that the overall number of people working in the field shrinks as a result.
In the case of cosmetology, potential hair stylists who cannot afford the schooling will have to try to find jobs elsewhere and may end up being unemployed. This is especially true during recessions when few employers are hiring.
Research by Dr. Thomas Snyder and myself for the Arkansas Center for Research in Economics (ACRE) investigated this link between licensure and unemployment. From our statistical analysis using all U.S. counties, we found that for every 10 state licensing requirements in low-income occupations, there was a 0.2 percent increase in the unemployment rate during the Great Recession. This means that in 2009 Arkansas could have had 2,717 fewer unemployed workers if it removed licensing requirements for 10 occupations. Since the state licenses 72 low-income occupations, the laws caused 19,562 people to be unemployed in 2009.
On the other hand, if Arkansas were more like Missouri, which licenses only 37 low-paying occupations, 9,518 more people would have had jobs in 2009, including 1,788 more people in Pulaski County and 469 more people in Saline County.
Our Legislature recently passed Act 600. It allows a legislative council to review licensing laws. The legislative council should keep in mind that licensing laws have made Arkansas suffer more during recessions than we otherwise needed to.
Licensing laws may not be a noticeable barrier when jobs are easy to find. Jobs aren't easy to find during recessions, though.
Economies don't boom forever, and Arkansas should make sure our laws don't put us at a disadvantage during the next recession.
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Thomas Moore is an undergraduate student research fellow for the Arkansas Center for Research in Economics (ACRE) at the University of Central Arkansas. The author's views are his own.
Editorial on 05/02/2019