State licensing requirements burden low-income workers with training and fees, study says

Key Points
  • One in 4 Americans needs a license to work.
  • On average, these licenses require about one year of training and cost $267.
  • Some workers, like 61-year-old Sally Ladd, say they're being burdened by overbearing licensing requirements.
Sally Ladd is suing the Pennsylvania Department of State and Real Estate Commission for her right to list other people’s properties on sites like Airbnb without a real estate license.
Photo: Brian Kiederling

In the 1950s, 1 in about 20 workers needed a license to work. Now, it's 1 in 4 Americans, according to a new report.

The Institute for Justice, a nonprofit national law firm that says it litigates to limit the size and scope of government power, recently released its second report on professional licensing requirements, "License to Work: A National Study of Burdens from Occupational Licensing."

The study measures the challenges and barriers faced by lower-income workers and entrepreneurs across the country.The researchers measured requirements for 102 lower-income occupation licenses including florists, hairdressers and interior designers. On average, these licenses require about a year of training and $267 in fees.

Some workers like 61-year-old Sally Ladd say they're being hit by overbearing licensing requirements. Ladd, a New Jersey resident, supports herself by doing freelance work on websites. A few years ago, she began operating as a property manager, listing homes for owners in the Poconos in Pennsylvania on short-term rental sites like Airbnb, along with two of her own homes. She hoped the work would help support her into retirement.

Early this year, she received a call from a Pennsylvania agency saying she was being investigated for practicing without a real estate license — something she said she didn't realize was needed.

"I was dumbfounded, and pretty much devastated by the news," Ladd said. "It was half my income at the time."

One of her former clients, Samantha Harris, referred Ladd to the Institute for Justice, which on behalf of the two women sued the Pennsylvania Real Estate Commission and the Pennsylvania Department of State in July.

The Real Estate Commission directed CNBC's questions to the Department of State, which declined to comment on pending litigation.

Ladd says she simply wants to be able to list rental properties for others on Airbnb and other sites without having to obtain a real estate license in Pennsylvania and having to open an office there.

The state has moved to dismiss, and a decision is expected in a few months.

"Once we prevail — and we're confident we will — the case could take at least a couple more years to reach a final resolution," said Josh Windham, the institute attorney representing Ladd.

Airbnb said it asks "every host to follow all local rules and regulations before listing their space on our platform," spokeswoman Kaelan Richards told CNBC via email.

Where licensing is most burdensome

It's not just the number of licenses on the rise, according to the report, but also the amount of study required to receive some licenses, and in some cases, the burdens can be uneven. For example, it takes about a year to become a cosmetologist, while it can take just months to become an EMT.

The study defines "steep requirements" as those that require a lot of schooling or other experience, as well as fees, multiple examinations and more. The institute did not capture the "indirect costs" of becoming licensed, including tuition for college, trade school or income forgone while studying or training instead of working.

The states with the most licensing requirements are Louisana and Washington, which license about 77 of 102 occupations. The state with the least licenses is Wyoming, with only 26 of 102. Most states license 54 on average.

Ladd is hopeful she'll be back to her property management work soon — without having to get a real estate license.

"There are many aspects of what I do that have nothing to do with selling, buying or long-term leasing of property. So my argument is really that laws are outdated and they need to be amended or overturned. In terms of short-term rental properties, they just don't apply," she said.