A tale of two states: comparing licensing reform efforts in North Dakota and West Virginia.

Lessons and takeaways for policymakers interested in streamlining occupational licensing.

As we enter April, two significant pieces of occupational licensing reform in two different states are both nearing the finish line. In North Dakota, SB2395 has passed out of both the House and Senate. Here in my home state of West Virginia, SB458 has also passed out of both the House and Senate.

Let’s take a deep dive into the specifics of both bills. Both bills seek to address one of the hardest to justify costs associated with occupational licensing. Occupational licenses, unlike driver’s licenses, do not easily transfer from one state to another. A licensed CPA, physician, dentist, or barber may face long delays if they move from North Dakota to West Virginia, or vice versa. Even worse, they may be required to pass additional exams or complete new education and training, even if they have a long track record of providing high quality service to customers.

The best way of addressing this friction, and many of the other associated costs associated with occupational licensing, is eliminating unnecessary licensing. Eliminating licensing often proves very difficult for policymakers. Barbers and cosmetologists, as an example, are licensed in all 50 states and requirements differ substantially across states. It is difficulty to justify why the unlicensed provision of haircuts should be a crime. The public safety rationale for such stringent regulation is very weak. Nevertheless, an effort to remove cosmetology licensing in Indiana four years ago was met with stiff resistance from practicing cosmetologists and owners of cosmetology schools. Similar difficulties can arise whenever there are efforts to remove unnecessary occupational licensing requirements.

Given these realities, a second best alternative is universal recognition of occupational licenses. Some version of universal recognition at the time of this writing is in effect in most states— 26 states in total.

The above map, built with data from an excellent report by Kihwan Bae and Darwyyn Deyo, illustrates how this reform has taken shape across the US.

Seventeen states have followed what I would refer to as the “Arizona model.” For the Arizona model, states recognize licenses in good standing without requiring that licensees have completed “substantially similar” or “substantially equivalent” education in training. For the Arizona model, outputs are valued over inputs. If state policymakers are serious about easing barriers for new licensed professionals wishing to work, the Arizona model, with some minor tweaks as noted later, is the best model.

So let’s return to our two pieces of legislation. West Virginia has chosen to follow the Arizona model. Its bill has wide coverage of occupations, and does not require licensees to meet arbitrary “substantially similar” requirements. If SB458 continues to advance, I anticipate that the bill will make a measurable difference for both West Virginia consumers and businesses. My research with Kihwan Bae estimates that passage of universal recognition is associated with a more than 48% increase in in-migration for the most affected licensed workers relative to their peers. Another study finds evidence of an increase in tax filers and adjusted gross income following passage of the reform.

I’m much less hopeful for North Dakota’s proposed legislation. The best part of the legislation is the short time window for processing a license— just 10 business days. Most other aspects of the bill are hard to justify. North Dakota’s bill gives wide latitude for licensing boards to determine what constitutes acceptable education and training. Inexplicably, the bill also exempts any occupation that has an existing compact or reciprocity agreement. Further, the bill contains language that licensing boards should actively seek out entering more compacts. In short, a large number of occupations are immediately excluded from the reform and the list is likely to grow as licensing boards are encouraged to seek out more compacts to enter. As a result, I am much less optimistic about the potential benefits of North Dakota’s bill.

Is the Arizona model perfect? Not at all. The Arizona model requires licensees to establish residency before their license will be accepted. This prevents workers from traveling across the border to provide services. Today, twelve of the seventeen states have slightly deviated from the Arizona model— allowing non-residents to also very easily begin working via universal recognition.

As each bill continues to advance, I expect West Virginia’s reform will be much more effective than North Dakota’s. As a proud West Virginia resident, it gives me great pleasure to say that North Dakota and many other states should look to the Mountain State for how to get universal recognition reform done right.