Last week, New Mexico Gov. Susana Martinez signed a sweeping executive order directing an internal review of all occupational licensing requirements in her state. This is an important development in New Mexico since the state has one of the more onerous licensing regimes in the nation. According to the second edition of License to Work, the Institute for Justice’s study of licensing burdens, New Mexico has the ninth most burdensome licensing laws in the nation. Because it also licenses more of the occupations studied than average—66 of 102—New Mexico is also the 11th most broadly and onerously licensed state.The governor’s executive order recognizes the many harms of excessive occupational licensing.
To quote the order, “research shows licensing requirements and fees limit economic mobility, entrepreneurship and innovation, disproportionately affecting low- and middle-income Americans.” The order also touts the positive impacts of reforms geared toward eliminating occupational licensing barriers for ex-offenders by “decreasing unemployment and reducing recidivism.” The governor signed her order at Cannon Air Force Base, noting that military spouses who move into the state often have to leave their careers behind because they simply don’t have the time or money to acquire a New Mexico license.The governor’s order requires licensing boards to review and report all requirements, processes and rules pertaining to the licenses they administer. Among other things, boards will have to report the number of states that license an occupation and provide additional justification for regulation if fewer than half of states license it. That’s especially important in New Mexico since the state is one of only 12 that license bartenders, six that license packers, and one of only two that license dietetic technicians.
Gov. Martinez is also asking boards to consider less restrictive alternatives to licensing, of which there are many. License to Work identifies 10 such alternatives that can protect consumers without shutting people out of work. Four of the options are completely voluntary and require no government intervention. One alternative is private certification programs, like what you find among auto mechanics. Uncertified mechanics are still free to operate, but certified mechanics are sending a signal that they take their work seriously and will do a better job than someone who isn’t certified.To identify the right regulation, if any, for an occupation, policymakers should first identify the problem or market failure that warrants government intervention. They should then tailor their regulatory responses to address that problem.IJ’s Model Occupational Licensing Review Law presents how this analysis can be done. Specifically, the model presumes that service providers’ reputations—spread not only by direct word of mouth but also increasingly via social media—suffice to protect consumers. The state should intervene only if there is empirical evidence of present, significant and substantiated harm to consumers that overcomes that presumption and warrants regulation. And then, it should select the least restrictive remedy. For instance, if the harm is contractual disputes, the proper response might be to create a new cause of action in small claims court. If the harm is fraud, the proper response might be to strengthen the state’s deceptive trade practices act. And if the harm relates to health and safety, the proper response might be to create a new inspection regime.Nebraska enacted legislation based on our model earlier this year. State legislators in Michigan and Ohio are currently considering similar bills.Gov. Martinez should be applauded for taking action on behalf of New Mexico’s entrepreneurs and job seekers. She joins a growing list of elected officials, Democrats and Republicans, reforming licensing in order to open up economic opportunity in their state.