(Editor's note: This article was published first at Illinois Policy Institute)
When low-income workers must ask government’s permission to earn a living, it makes it harder to escape poverty: Illinois is worse about that than six of its neighbors.
Occupational licensing is a barrier to fighting poverty
Illinois licensing makes escaping poverty harder than in other Midwestern states
| Illinois Policy Institute
Poverty levels in Chicago are currently at 17% – higher than they were when President Lyndon Johnson launched the War on Poverty. That rate differs drastically based on the level of employment. The poverty rate for those unemployed but looking for work was almost 40%, and over 31% for those who’ve given up on looking for work.
But the rate of poverty for those with full-time employment is just 2.3%. Jobs kill poverty.
Moving the unemployed and part-time workers into full-time work is an obvious path toward alleviating poverty in the city.
Licensing requirements by state governments on dozens of professions creates an unjust and unnecessary barrier to moving people into gainful employment. These government permission slips to earn a living create extra steps for people already facing challenges.
Research shows licenses decrease employment: changing an occupation from unlicensed to entirely licensed is associated with a 29% reduction in employment. An increase in state licenses is also associated with a decrease in intergenerational mobility and an increase in income inequality. Growth in state licensing is associated with a 1.6% to 6.2% reduction in absolute mobility and increases in income inequality ranging from 3.9% to 15.4%, both at the county level.
When compared to the rest of the Midwest, Illinois licenses more professions and imposes a higher burden than other states. This increased burden makes it harder for Chicagoans and other Illinoisans to find the full-time work that could lift them out of poverty.
Illinois is less competitive than other Midwestern states
Illinois ranks worse than six Midwestern states when it comes to the burden of occupational licensing on professions that earn below-average incomes. According to research from the Institute for Justice, Illinois ranks in the middle of the pack in the Midwest – it is beaten by South Dakota, Missouri, Kansas, Minnesota, Indiana and Ohio.
The Institute for Justice ranks states based on 102 low-income professions – those professions recognized by the U.S. Bureau of Labor Statistics as ones in which practitioners earned incomes below the national average when the institute began ranking states in 2012. Illinois requires licenses for 41 of them.
Six states in the Midwest also license fewer occupations than the Prairie State. Ohio licenses 40 occupations, Indiana licenses 37 occupations, Minnesota and Kansas each license 35 occupations, Missouri licenses 33 and South Dakota licenses 32.
When it comes to the average burden on the occupations that are licensed, Illinois is again beat out by six states in the Midwest: Nebraska, North Dakota, Wisconsin, Kansas, Iowa and Minnesota.
Full-time employment is the clearest path out of poverty, but many low-income professions in Illinois are burdened by prohibitive occupational licensing requirements. Some of these professions have unreasonably high burdens to entry in general, and the state should look to be a pioneer in reducing them. For others, Illinois’ neighboring states impose fewer restrictions.
These licenses are a clear barrier to moving people into gainful employment. But Illinois’ licensing burden makes this a more difficult task than in other Midwestern states. Reducing licensing barriers to make the state more competitive in the region is an obvious step toward tackling poverty in Chicago and the rest of the state. State policymakers should take note.