SUMMARY
Few of us would want to live in a society without rules that keep our air and water clean; that give consumers the confidence to do everything from investing in financial markets to buying groceries. And the fact is, when standards like these have been proposed in the past, opponents have often warned that they would be an assault on business and free enterprise. We can look at the history in this country. Early drug companies argued the bill creating the FDA would “practically destroy the sale of … remedies in the United States.” That didn’t happen. Auto executives predicted that having to install seatbelts would bring the downfall of their industry. It didn’t happen. The President of the American Bar Association denounced child labor laws as “a communistic effort to nationalize children.” That’s a quote. None of these things came to pass. In fact, companies adapt and standards often spark competition and innovation. - President Obama, speech to the U.S. Chamber of Commerce, February 7, 2010.
Much has been said regarding the regulations of certain professions in the United States and Puerto Rico. Some say specific regulations will destroy millions of jobs, while others just state that licenses and regulations are just filters to hinder the growth of the profession. Regulations are frequently discussed only in the context of their threat to job creation, while their role in protecting lives, public health, and the environment is often ignored.
This article reviews whether the evidence backs the perspective of licenses and regulatory opponents. The first section looks broadly at the occupations that require professional licenses in Puerto Rico, the effects of regulations, and their role in the economy. The first section provides an overview of the professions in Puerto Rico that require an occupational license, including health practitioners, lawyers, and other professions regulated by the Department of State. As per this analysis, 18.6% of all professions in Puerto Rico require an occupational professional license. The economic significance is provided in more detail in this section.
The second section assesses the theory and evidence for the assertion that regulations and professional licenses in Puerto Rico undermine jobs and the overall economy. This perspective is provided by the pros and cons of having the current licenses and regulations in place. Some of the pros and cons discussed include:
Pro’s
Short-term job/competition increase
Innovation and Entrepreneurship
Lower Costs for Businesses and Services
Con’s
Quality, Health, and Safety Concerns
Impact on Professionals
Leaves consumers on their own
Job loss of indirect professional training
Threatens career mobility
Long-term job loss due to low-quality
The third and final section provides the findings of this article, which conclude that while eliminating licenses and regulations could lead to increased competition and innovation, some potential risks and challenges need to be carefully considered as they can outweigh their benefits. The solution is not deregulation, but the modification of existing licenses that are overregulated.
SECTION 1. OVERVIEW
Well-crafted licenses and regulations serve many purposes. The main purpose is to protect the population from harm, ensure reliable professional services, and safeguard the environment. In some cases, regulations can prevent national and regional economic disasters (2007 Housing Bubble) and strengthen particular industries. They also play a critical role in structuring the economy and paving the way for innovation and competitive markets. This section examines the significance of professional licenses in Puerto Rico and how they influence the overall job market and economy.
As per the latest data from the U.S. Bureau of Labor Statistics, May 2023 State Occupational Employment and Wage Estimates, in Puerto Rico, there were 544 occupations with 928,240 employees. Out of these occupations, approximately 101 occupations in Puerto Rico, or 18.6% required professional licenses. The number of occupations with some professional license in Puerto Rico is below the U.S. average, where around 150 occupations out of 867 occupations require licenses. Additionally, if occupational licenses are compared with Gross Domestic Product (GDP) per capita, by state, we can see that there is no correlation between high-income states and the number of occupations that require licenses. The lack of correlation between GDP per capita and occupational licenses demonstrates that fewer occupational licenses do not equal more output or more jobs. The effect of occupational licenses must be evaluated on a case-by-case basis as the reduction of regulations does not necessarily hinder their local economy.
The previous graph proves that low (Mississippi) and high-income (New York) states can have the same number of occupational licenses but a completely different economic scope.
It is estimated that in Puerto Rico 101 occupations require licenses (33 Medical Practitioners, 1 Law, 17 regulated by the Department of State, and 50 other occupations). Even though there are approximately 101 occupational licenses in Puerto Rico, only 17 occupations are monitored by the Department of State. All Health Practitioner licenses are monitored by the Department of Health of Puerto Rico, while licenses for lawyers are monitored by the Department of Justice of Puerto Rico. All other specialized licenses are not monitored, thus is hard to oversight these other licenses. The professional licenses that are monitored account for approximately 12% of all jobs in Puerto Rico. Almost all health practitioners require a license to work in Puerto Rico, thus, for this analysis, all health practitioners are bulked into one. These occupations have an average annual growth of 6.8%, with an average license passing rate of 46%.
As we look more in-depth at this data, we can tell that its economic significance is low with a representation of 12% to 19% (considering other occupations) of the total employment in Puerto Rico. Even if licenses and examinations were not provided, the annual change in employment would be 3,435 new professionals or an increase of less than 1% over the current jobs in Puerto Rico, assuming that professionals acquiring their new license were not already employed.
The economic effects and benefits of maintaining regulations over these professions are much larger than the benefits of deregulating them, as new job creation and economic stimulation from deregulation would be minimal.
SECTION 2. ASSESSMENT OF PROFESSIONAL DEREGULATION
This section assesses the theory and evidence for the assertion that regulations and professional licenses in Puerto Rico undermine jobs and the overall economy. This perspective is provided by the pros and cons of having the current licenses and regulations in place. Some of the pros of deregulation and eliminating professional licenses include:
Pro’s
Short-term job/competition increase - Removing professional licenses would likely lower barriers to entry in various industries. This could lead to increased competition as more individuals would be able to enter the market without needing to fulfill licensing requirements. As a result, consumers may benefit from lower prices and increased choices. This increase could be short-term as low barriers could create saturation and the market would self-regulate with demand.
Innovation and Entrepreneurship - With fewer regulatory hurdles, entrepreneurs may be more inclined to start businesses in industries that were previously restricted by licensing requirements. This could foster innovation and economic growth, as new ideas and business models are allowed to flourish without being stifled by licensing regulations.
Lower Costs for Businesses and Services - Businesses would no longer need to invest time and resources in obtaining and maintaining professional licenses for their employees. This could result in cost savings for businesses, which could be passed on to consumers in the form of lower prices or reinvested in the business to spur further growth.
While the elimination of professional licenses could create some savings for consumers, the effects on the economy could be worse than the immediate benefits created. Some of the cons of deregulation and eliminating professional licenses include:
Con’s
Quality and Safety Concerns - One of the primary arguments in favor of professional licensing is that it helps ensure a certain level of quality and safety in regulated industries such as construction, health, finance, real estate, among others. Without licensing requirements, there may be concerns about the quality of services provided by unlicensed individuals and the potential risks to consumers. This could lead to increased instances of fraud, malpractice, or substandard services, which could harm consumers and damage the reputation of affected industries. Eliminating licensing would eliminate the critical training and qualifications necessary for work that directly impacts the public safety, trust, and welfare of the population of Puerto Rico.
Impact on Professionals – Deregulation would create a different kind of professional, one that is less prepared to deal with clients, changing technology and business efficiencies. Licensing is about more than entry into a profession. Licensing boards provide the systems for ongoing education for professionals, critical in professions that must stay current with complicated and changing codes, and the means for enforcing standards and sanctioning bad professionals. Weakening licensing would diminish the ability of the licensing boards to establish, verify, and enforce necessary expertise. Licensed occupations could be driven by price rather than by quality, efficiency, and best result for the client. This could have long-term implications for the safety and health of the client, not to mention the additional cost of re-work and work not being done up to standards. This happens often to clients that currently contract professionals without licensing (underground economy) and later must perform the work the correct way. Without licensing this would happen often giving the profession a bad reputation as a whole and with no repercussions, such as removing the license.
Leaves consumers on their own - Professional licensing is an important indicator of a baseline level of expertise and qualification. Without professional licensing, the burden of evaluating qualifications and competency would shift from expert licensing boards to individual consumers. Consumers seeking to hire an architect, engineer, or CPA would be left on their own to assess the professionals’ abilities. This is an unreasonable and dangerous burden for consumers without the expertise to verify the competency of the person they are hiring. Additionally, absent licensing, ensuring qualifications on the front end would be replaced with case-by-case litigation when something goes wrong. This approach is inefficient and costly for consumers and importantly, it does nothing to prevent other consumers from hiring the same unqualified professional.
Job loss of indirect professional training – Measuring deregulations and the elimination of professional licensing solely on the factor of job creation is a wrong concept as the same number of jobs created by deregulation would be lost in the industry of training these professionals and their continuous education. A case could be created that the employment effect of removing professional licenses would be nil as direct training services provided to these professionals would be lost.
Threatens career mobility - Weakening licensing standards on a state-by-state basis will destroy confidence in qualifications and completely disrupt existing mobility models. States will be less inclined to accept out-of-state professionals without licenses if some states have rigorous requirements and some states have weak requirements. This uniformity of standards establishes a baseline of trust in the qualifications of practitioners from other states that makes it possible for professionals to move from one state to another and have their licenses acknowledged. Professional licensing maintains a certain level of reciprocity between states which makes it easier to work and diversify the profession in different areas. The removal of licensing will make it more difficult for professionals to move and maintain their careers across states.
Long-term job loss due to low quality – The elimination of professional licenses will lower the barriers to entry into a profession, but the increase in jobs will be short-lived as the market will self-regulate by demand. Additionally, low standards in professions could have an adverse effect as reputations could be damaged and confidence in hiring a professional could diminish. A long-term effect could be a lower level of employment (below baseline after deregulation) due to low confidence in the profession as a whole.
SECTION 3. FINDINGS
As established in this article the elimination of occupational professional licenses seems to have more drawbacks than benefits. Professional licenses and regulations are often implemented due to lessons learned from past situations that governments want to control and/or avoid their reoccurrence in the future. Some of the Key findings of this article include:
Occupations with professional licenses account for 18.6% of all employment in Puerto Rico, which is not as significant in employment as other industries.
Occupational licenses do not correlate with economic growth as low (Mississippi), and high-income (New York) states can have the same number of occupational licenses but completely different economic scopes.
The elimination of professional licenses in Puerto Rico could have an employment effect of 3,435 new professionals or an increase of less than 1% over the current employment in Puerto Rico, assuming that professionals acquiring their new licenses were not already employed.
While eliminating occupational licenses could decrease barriers to entry and lower business costs, it could have an adverse effect on the health and safety of the population, and the type of professional offering the services.
Eliminating professional licenses solely with the objective of job creation is an incorrect concept as many other jobs could also be lost (in the training industry) by taking this action. In this line of thought, the impact on employment of eliminating occupational professional licenses would be almost nil and offset by other jobs lost.
Occupational regulations refer to mechanisms that impose minimum standards (often educational standards) for entry into and continued work in an occupation. The problem arises as time passes and regulations disregard the benefits of the people and become more barriers to entry into certain professions. In the context of licensing, this is most evident in the overregulation of occupational licenses. As a solution, we should not immediately discard licensure regulations altogether simply because licenses are a barrier to entry or because of job creation. A comprehensive review of existing licenses and regulations calls for a fact-based approach to render a determination of whether an occupation being licensed warrants all the regulations in place.
In conclusion, the solution is not deregulation, but modification of existing licenses that are overregulated, with the consideration of the burdens to the professional and consumer. The overregulation of certain professions is what drives the conversation about deregulation, and what must be changed. While there is no single, perfect professional licensing model, those that are most successful for both professionals and the public share a common characteristic: sufficient regulations to protect both the profession and the public efficiently.
Disclosure
The views in this article are solely the responsibility and the opinions of the author and HI Project Consultants, LLC. Opinions should not be interpreted as reflecting the views of any other company affiliates. All information used in this article is public, published information referenced in each table and/or graph.
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