How Universal Recognition Impacts Licensees

The Knee Regulatory Research Center’s founding director Ed Timmons makes the case for universal recognition and explains how this differs from other forms of licensing agreements, like licensure compacts. He points to a reduction in barriers to work, along with a resulting rise in employment in states that adopt universal recognition. Listen to the entire interview with Ed Timmons on our Talkin’ SaaS podcast.

According to Timmons, the Knee Regulatory Research Center strives to “produce high quality research on the effects of government regulation, and to communicate the results of that research broadly to inform real world policy change.” The center also focuses on scope of practice for licensed professions, along with researching the effects of certificate of need regulations.

GL: Share your research on licensing reform in the United States, as well as the impacts of occupational licensing.

Ed Timmons: I recently put out a new working paper that looks at the effects of universal recognition. And just to take a couple of steps back. Occupational licensing affects a significant chunk of the workforce. Now, it’s estimated that anywhere from one in five to as many as one in three workers in the United States has to get a license to work. So, this affects professions like lawyers, barbers, cosmetologists, geologists, even florists, depending on the state. There’s a big variety with respect to how occupations are regulated on a state-by-state basis. And there can be some significant consequences associated with those regulations.

Of course, the laws are passed with the stated purpose of trying to create a minimum quality standard for these workers. But by imposing these restrictions, there’s also some costs and consequences. And one of the costs and consequences of licensing is that licenses aren’t portable. For the most part, driver’s licenses are relatively portable from state to state. I recently moved from Pennsylvania to West Virginia, and it wasn’t too painful for me to transfer my license from Pennsylvania to West Virginia. I didn’t have to take any tests. I just had to fill out some paperwork and the process was taken care of. But occupational licenses typically don’t work that way. Let’s say I was working as an engineer in Pennsylvania and had a license. My license wouldn’t necessarily transfer to West Virginia. And same goes if I was a certified public accountant or a barber or any one of the large number of licensed occupations that there are in the United States.

It’s been estimated by another team of researchers that occupational licensing restricts mobility by 7%. So, there was a research paper that Morris Kleiner and Jana Johnson put out. It’s a couple of years old. But they found that licensing restricts mobility for individuals that are looking to move from state to state. So, what I did with my research paper with Kihwan Bae, my colleague at the Knee Regulatory Research Center, is we estimated the effects of an important reform that has been popping up in a number of states over the last couple of years and it’s called universal recognition. What universal recognition does is that if I have a license, and I move into a state that has universal recognition—and there’s now 21 states that have passed some form of universal recognition—my license will be recognized. I generally have to meet some requirements. I have to have a license that’s in good standing. And I have to have at least a year of experience. And there’s some variety from state to state as to what those requirements will be. But for example, Ohio is one of the states that recently enacted the reform earlier this year. If I were a licensed worker, and moving to Ohio, my license would transfer. I wouldn’t need to meet a lot of the additional requirements. And those additional requirements can be quite burdensome. I might have to take another test. I might have to complete more training. There might be a variety of hurdles, I might need to, to jump over. Even if I’m experienced for decades, I’ll still have to meet those requirements in order to be able to continue working in my chosen profession. That’s in a nutshell the crux of the reform that we analyzed in the paper.

GL: What are the benefits of universal recognition?

Ed Timmons: In the working paper that we put out, we find that when states pass universal recognition that their employment rises by a full percentage point. So, it’s a pretty significant and large effect on the folks that are working in states to pass the reform. And the reform seems to operate through a couple of different channels.

First off, it makes it easier for individuals that are new residents. So, if they’re moving in from another state, maybe they’ll be more inclined to want to move. We did estimate that states that pass universal recognition had almost a 50% increase in in-migration. Migrations not big, but as a percentage, it was a pretty large effect, in terms of in-migration. But what the reform also does is it has benefits for folks that are already living in the state. So, there could very well be folks that have valid licenses. But because they find the existing recertification process to be too burdensome, or they don’t know where to start, they’re not participating in the labor market. You could very well have folks that have a valid license from their previous state, and they have years of experience, but they’re not able to work in their new state, because their license doesn’t transfer. You could have folks that are out of the labor force entirely come back into the labor market because now their license will in effect be valid. And they’ll be able to work under this new reform. Also, you could very well have folks that are underemployed. You could have folks that are working perhaps in a field that they weren’t previously licensed in but they figured, you know, I don’t really want to go through this whole process. So let me go ahead and work in something else. Let me maybe get a gig as an Uber driver or what have you, rather than go through the whole process.

And we in fact find that labor force participation goes up in states that have passed this reform. And we also find that unemployment goes down. So, it makes it easier for those that are looking for work to find work. And we suspect that that’s because, well, you know, now, what I was doing for years and years, in my previous home state, I can continue to do without meeting the typical barriers and passing the exams and so forth, that I used to need to complete in order to continue working.

GL: Can you break down the different types of licensing reforms?

Ed Timmons: Yeah, so a number of states like New Jersey and Pennsylvania, and several other states that have passed the reform, they have language that says that your requirements or your license has to be substantially similar. So, I would say that this makes the reform a little bit less effective, because there can be significant differences from state to state with licensing requirements. One that sticks out in my mind, and one that I’ve studied pretty extensively is barbers. There are still states that require barbers to complete as much as 1,800 hours of education and training. Whereas, if I’m a barber in New York, I can become a barber in a little less than 300 hours. So, you know, pretty wide differences. And if that language is there, and a board is interpreting the law, it could very well be that if I’m a barber in New York, I really can’t move into Pennsylvania and keep working. I’m going to have to potentially complete additional requirements in order to be eligible for this reform.

The other variety is a residency requirement. And although Arizona doesn’t have the substantially similar, and that’s what really separated Arizona at first, from the other states that have passed this reform, Arizona does have a residency requirement. And so, what this would say is that before you take advantage of this reform, you have to move here first. So that might create some disincentive for folks that are thinking about moving into the state because I have to move there before I’ve secured employment. You know, I think folks would probably prefer to have the job first before they go ahead and do the move.

There are still other states, like Iowa, Missouri and Idaho. They say that if you have a license in good standing, and you have a year of experience, that your license will transfer. You’ll be eligible for the reforms. So, you don’t have to be a resident. You don’t have to meet substantially similar requirements. And there’s also states that have now included language. Missouri is one of them. Iowa’s one of them. Ohio as well. I think Mississippi has this language as well where they’ll say that, even if you don’t have a license, but you’ve been working in this profession for at least three years, or at least five years, it varies from state to state and you can verify that you’ve been working in that profession in some way, that you’ll also be eligible for a license. So, they’re, in effect, accepting experience, as is often done with licenses. In some cases, they’ll have an apprenticeship pathway to obtain the license. Essentially, they’re saying that if you have that relevant experience, and you’ve shown a good track record, and working in this profession, that you can begin working in Iowa or Missouri or one of these other states that has that flavor.

There are pretty significant differences. One other difference I’ll note is that—and it’s been popping up more recently—is states are excluding some professions from the reform. And unfortunately, teachers is one of them that gets excluded a lot from the reform. Not to say that no states allow teachers to take advantage of the reform, but teachers is one profession that oftentimes gets excluded.

And in some of the more recent states, some of the medical professions are left off of the reform. Most of the states that have passed the reform—I think it’s about 15—do allow medical professionals to take advantage of the reform. And if there’s any profession where it makes sense, where, you know, the standards are pretty uniform, not all of them, but for many of the medical professions, they’re pretty uniform from state to state. Universal recognition, probably, if you’re going to make any argument against it, the standards are pretty comparable from state to state. So, this seems like the right type of reform, particularly with COVID, and, you know, some of the pockets and continuing shortages of medical professionals in a number of areas. It seems like a no brainer. But it’s been getting excluded from some of the states that have recently enacted the reform.

GL: How does universal recognition differ from interstate compacts and reciprocity agreements?

Ed Timmons: I’ll start with reciprocity. And this is essentially the status quo. With reciprocity, a state could enter into a reciprocity agreement with another state or a group of states. And essentially, the states would have to decide that our requirements seem to be about the same. And if you accept our licensed workers, we’ll accept yours. Let’s say that West Virginia had a reciprocal agreement with Pennsylvania for barbers. Then barbers would be able to have their license recognized in West Virginia and vice versa, if they’re moving from Pennsylvania to West Virginia, or West Virginia to Pennsylvania. This process is subjective. And it essentially requires those individual states to identify those other states. It can be time-consuming. At the Knee regulatory Research Center we gather licensing requirements on a state by state basis. It’s not an easy thing to do. You have to read through those statutes, and that data is not widely available or accessible. We’re trying to improve that. But you know that that data is not all that great. So, reciprocity agreements are limited as they are for a variety of reasons. Licensing requirements vary. It can be hard to get that information. And the boards themselves very well might not necessarily have the incentive to do it.

Compacts are a relatively more recent reform that we’ve seen. Probably the compact that has been most successful is the Nurse Licensure Compact. I think the majority of states now have passed the revised E-Nurse Licensure compact or enhanced Nurse Licensure Compact. An issue with compacts, though, is that it’s occupation by occupation. So, I mean, it’s been estimated that there are as many as 1,000 licensed occupations. So, we could be waiting decades for there to be a compact for every single profession. And I think compacts work less well when you have differences in requirements across states. Like one compact that I’m very, very skeptical about is the compact for cosmetologist because cosmetologist licensing requirements vary from state to state. And what I worry about is that there could very well be movement upwards in education requirements, in the name of portability. But are you potentially excluding folks from wanting to be a cosmetologist, if all of a sudden we say that every single state has to require 2,000 hours, in order to be eligible to participate in this compact. So, cosmetology licensing requirements can be quite a bit lower than that there’s many states that only require 1,000 hours. So, you know, I worry about the amount of time that it would take to have a compact. There’s been some anecdotal evidence that even for the Nurse Licensure Compact, people don’t really understand how it works. It can be difficult for licensees to navigate that process. So, I would say compacts are also less effective than universal recognition.

With universal recognition, you’re saying, we’re simply going to accept other states’ licenses. We’re going to recognize that other states have economies that function and work very well. You don’t see examples of really bad barbering in New York relative to other states, even though the licensing requirements are quite a bit lower. People in New York seem to be getting by just fine. We’re going to give New York credit. We’re going to respect the work that the licensing authorities in New York did. And if people are working as barbers and doing a good job, we’re going to accept that license. And we’re not going to do it one by one, like you have to do with a compact. We’re simply going to say, if you’re a licensed worker, we’re going to recognize your license.

So, for that reason, I think universal recognition is the best way to go about doing it. You’re hammering out every single licensed occupation at once. And you don’t have to go through the process of a compact, because compacts themselves have additional requirements. There’s additional bureaucracy that gets created by the compact. So, it seems like it’s replicating in a less effective way what you’re able to do with universal recognition. Universal recognition to me makes the most sense.

GL: What are the weaknesses of universal recognition?

Ed Timmons: I think something that oftentimes gets said is that, well, you know, this state is different. You know, our state is unique. And that’s why our requirements are different. That’s an objection that oftentimes gets made. And, you know, I think my counter argument to that would be well, you know, why is it that in 49 other states you don’t have any evidence whatsoever of people receiving lower quality service, or there being more incidents of harm? Part of it is that that data is scattered. And we’re trying to fill in the gaps. And there have been other efforts as well. The National Conference of State Legislatures, they have a database of 30 occupations. The Institute for Justice, they publish every couple of years, a report on occupational licensing requirements for a little over 100 lower income occupations. You know, we’re looking to take that one step forward. We have 50 occupations right now that we released earlier this year. And our objective is that in 2024, we’ll have a longer list of professions, and we’re going to update it every year, so the state legislatures will have access to that information. And they’ll be able to see, well, you know, does it really make sense for us to have the most strict requirements?

You know, Louisiana, very famously or maybe infamously, is the only state that licenses florists in the entire country. You know, does it make sense to have a license for a florist, if every other single state doesn’t have it? And the arguments that get made are: Well, you know, it’s going to put all the small florists out of business. Well, small florist exists in West Virginia, and every other state. They’re doing just fine. So yeah, I mean, and coming back to the objections about universal recognition, I think I’d really like to see all the states that passed it, follow the model of states like Iowa and Idaho, where they simply say that, if you have a license in good standing, we’ll accept your license. You don’t have to be a resident. You don’t have to meet substantially similar requirements, and even offering an alternative pathway as some of the states have done. Because there are occupations that aren’t universally licensed like florists. Louisiana has not passed this reform. But if somebody was moving from another state into Louisiana and they really were passionate about florist design, they wouldn’t be able to do it. And, you know that would be unfortunate for those individuals and for consumers. They wouldn’t be able to purchase things from that provider.

GL: It seems like universal recognition has gained traction. What are your thoughts?

Ed Timmons: Yeah, I mean, I think there have been a couple of things. I mean, I think the study that Janet Johnson and Morris Kleiner put out, I think was important, because it was the first study that I think effectively quantified how licensing might be restricting mobility from state to state. But there have been some other landmarks as well. I mean, one that I oftentimes point to is in the summer of 2015, the Obama administration put out a white paper. And it was a really well-done piece that summarized things that us economists have known about occupational licensing for a while now. And I think prior to that report, for whatever reason, this issue was more of a right side of the aisle issue. But with the publication of that report by the Obama administration, I think licensing came on the radar of both sides of the aisle. So, I think that was really critical that that report made it more of a nonpartisan issue.

You know, with COVID for a variety of reasons, there have been some frictions in the labor market. And a lot of employers have had difficulty finding skilled workers. So, I think legislators are open to thinking about how can we remove some of these frictions? If we have workers on the sidelines that are teachers, let’s say, and because our process of recertifying them is too onerous, and they’re not working, that doesn’t seem to be the right strategy. I mean, if we can somehow bring those skilled teachers, and all the skilled licensed workers that might be sitting on the sideline, back into the labor market. And I think there’s also been some recognition of this from the various branches of the military, given the fact that veterans and their families and active military duty, families move quite a bit. So, they feel the bite of occupational licensing, more so than civilians. I think there’s been some recognition, and that’s something that Michelle Obama was very passionate about. And very many other elected officials have shown interest in trying to ease that, and for the most part, for veterans, that issue is just about there. But for the rest of us, as I mentioned, you have 21 states that have passed some form of recognition, some better than others. But it’s still not a problem that’s completely solved, you still have people that move and they’re not able to put the skills that they have to work.

GL: What is the history of universal recognition in the United States?

Ed Timmons: Arizona was the first state to pass a specific variety, what I would consider to be the more effective flavor, if you will, of universal recognition. But the first state to pass the reform was actually New Jersey. It didn’t receive much fanfare. But it was an important piece of legislation. That legislation passed in 2013. And, you know, there are some differences with respect to universal recognition, as I mentioned, with those specific requirements that workers need to meet in order to meet the requirements of the legislation.

Editor’s note: Answers edited for clarity and brevity. Listen to the entire interview with Ed Timmons on our Talkin’ SaaS podcast. Interested in appearing on our Talkin’ SaaS podcast? Reach out to rmoseley@glsolutions.com. We look forward to hearing your insights.

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