South Dakota policymakers have a lot to be proud of. Coming in at 2.3 percent, South Dakota has the second-lowest unemployment rate in the nation — slightly higher than Utah.
There is one area, though, where South Dakota can and should do better for its citizens: occupational licensing reform.
Occupational licensing laws make it illegal for individuals to begin working in a profession before meeting entry requirements like minimum levels of schooling and training. It is essential to differentiate licensing from other types of regulation — licensing is the strictest and most onerous way to regulate a profession. There are many different ways to regulate a trade and keep consumers informed and protected.
One example is auto mechanics. Auto mechanics are not licensed in South Dakota or the United States. Instead, auto mechanics can obtain private certification to let consumers know about the training they have received.
Reputation is also important — we can look online at reviews or ask friends and family for their recommendations.
At first glance, it might appear South Dakota is doing a good job on occupational licensing. A recent national ranking, where a higher ranking is better and focuses on lower-income occupations, places South Dakota 49th out of 51 states.
A closer look tells a different story. Take barbers, for example. South Dakota requires aspiring barbers to complete 1,500 hours of education and training. Twenty-six states have lower requirements for this profession. New York state, which is not known for being an example of low regulation, requires barbers to complete less than a fifth of this training.
This is only one of several examples where South Dakota places a much larger burden on aspiring workers than other states.
Another cost of occupational licensing is that it restricts mobility. Often, when workers move to another state, their license is not recognized, and they may have to complete additional training and spend time and money before they are permitted to work.
Recent research confirms this problem and shows that occupational licensing may reduce interstate mobility by 7 percent.
A new South Dakota law will help address this issue with licensing. But unfortunately, the new measure leaves a lot of aspiring workers out in the cold.
The law provides a pathway for licensed workers to begin working in South Dakota, but only if their license is deemed “substantially equivalent.” In other words, barbers in New York or the 25 other states with less burdensome licensing requirements will not be able to get their licenses recognized. They can work, but only if they agree to complete additional education and training — ignoring their experience and working knowledge.
In short, making it easier for new residents of South Dakota to enter the state is essential. Especially when South Dakota is experiencing the same skilled worker shortage that continues to be a national problem.
But South Dakota should do more. It doesn’t have to go out on a limb, either. Nine states, including neighboring Iowa, have enacted broader reforms. These states welcome workers from other states and don’t insist they meet an arbitrary “substantially equivalent” standard.
Further, South Dakota should take a closer look at its licensing requirements. Why does it make sense to have stricter licensing requirements for barbers than in other states? Are citizens benefitting, or is it only making things harder for aspiring consumers and workers? Nearly all of the research that has been done on the effects of licensing shows slight quality improvement.
South Dakota has a strong labor market. But to keep the momentum going, businesses will need to find workers. Real and meaningful licensing reform, rather than baby steps, will go a long way toward setting the state up for continued prosperity.