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Obama has a modest plan to tackle one of the most underrated economic problems in America

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When President Barack Obama unveils his budget on Monday, it will include a proposal for $15 million to study occupational licensing requirements in all 50 states, according to the New York Times. The money will be used to combat a growing problem: states requiring licenses to practice professions like makeup artist, auctioneer, upholsterer, and interior decorator. In many cases, these regulations limit competition and drive up prices without doing much to improve quality.

Many of Obama's funding proposals will face skepticism from the new Republican-controlled Congress. But promoting deregulation of state licensing rules is an idea that should be easy for GOP legislators to get behind, as it dovetails with the party's small-government philosophy.

Supporters of occupational licensing argue that these kinds of state regulations are necessary to protect the public from unscrupulous or incompetent practitioners. No one wants to get surgery from an undertrained doctor or fly in a plane with an inexperienced pilot.

But many states have expanded licensing rules to professions where it doesn't make much sense. A 2012 study from the Institute for Justice, a libertarian advocacy group, catalogued licensing rules in 50 states and the District of Columbia. The study found that 39 states require licensing for massage therapists, 34 states require a license to install security alarms, 29 states require a license to be a teacher's assistant, and 24 states require a license to be a coach. States license animal breeders, bartenders, funeral attendants, shampooers, and dozens of other professions.

Of course, everyone would like their massage therapists and funeral attendants to be good at their jobs. But these aren't life-and-death professions the way doctors or airline pilots are. And there's little evidence that these kinds of licensing regulations actually improve the quality of service customers receive. At the same time, higher rates often price some consumers out of the market entirely, which can cause serious harms on its own.

Dentistry provides a striking example. Some states allow dental hygienists to provide routine dental care; others require these services to be provided by a licensed dentist. You might expect the stricter licensing regimes to lead to better dental outcomes, but a 2009 study found the opposite: states with stricter rules had more adults with missing teeth, suggesting that the higher prices were making it difficult for patients to get the service they need.

(Chart courtesy of James Bessen. Sources: Centers for Disease Control and Prevention, Behavioral Risk Factor Surveillance System, 2006; Wing, P., Langelier, M., Continelli, T. and Battrell, A. (2005). ‘A dental hygiene professional practice index (DHPPI) and access to oral health status and service use in the United States’. Journal of Dental Hygiene, 79: 10–20. Figure uses 100 minus the DHPPI.)

Getting your teeth cleaned by someone who is underqualified is bad. Skipping a cleaning entirely because you can't afford it is worse. Other studies have found similar results.

There's so much variation in state licensing regimes that it's hard to compute exactly how much these rules cost workers and consumers. But one rough estimate found that they reduce employment by 2.85 million while increasing costs to consumers by $203 billion.

For now, the Obama administration's proposal on this front is modest. According to the Times, the Obama administration would provide $15 million to states to help them "analyze the costs and benefits of their licensing rules, identify best practices and explore making licenses portable across state lines." Final authority about which professions to license would remain with the states, but the feds would try to nudge them toward adopting less restrictive rules.

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