How Side Hustles Are Hampered by Occupational Licensing

This article was co-authored by Sebastian Anastasi, a tech and innovation policy intern for Libertas Institute. 

At a time when Americans are struggling with rising inflation and the possibility of a recession, opportunities to earn extra income are more important than ever. For many people, that opportunity is the gig economy. But in some states there’s a catch: occupational licensing. 

Want to earn money as a tree trimmer? Seven states require a license that costs an average of $325 in fees and takes roughly 574 days to acquire. Hoping to make a little extra cash painting? Twenty-eight states require a license that costs an average of $312 and takes 277 days to obtain. Even installing home entertainment systems (TVs and the like) requires an occupational license in states like Connecticut. 

Sound ridiculous? It is. All told, nearly a quarter of all occupations in the United States require a license. And it is a serious impediment to a promising source of supplemental income in times of need.

The vast majority of Uber drivers, for example, say that joining the app has increased their income. Pew finds that the majority of gig workers are satisfied with the money they earn, with six-in-ten workers reporting that the money earned through the gig economy was important in meeting their basic needs.

Despite arguments that licensing requirements are meant to protect consumers, they don’t necessarily translate to better quality or price. A study comparing licensed NYC rideshare drivers and unlicensed New Jersey rideshare drivers, for example, found no differences in quality. This is despite requiring New York drivers to secure a taxi license, a three-month process that costs $2,000 and includes obtaining a commercial driver’s license, taking courses in defensive driving and wheelchair access vehicles, drug testing, and submitting to a medical exam. 

Licensing restrictions also artificially restrict the supply of available workers, which translates into less competition and higher prices charged for services. 

In some areas, occupational licensing restricts access to gig help for specific tasks altogether. Tasks such as barbering, for example, may never materialize on gig platforms because it could cause a platform to run afoul of these restrictions. 

Limiting opportunities to earn extra cash and artificially inflating prices is economically damaging. But in trying economic times, the effects are amplified. Occupational licensing is a barrier to Americans seeking ways to earn extra money and increases the cost of one-off tasks for consumers. States hoping to ease the burden of inflation should consider decreasing occupational licensing restrictions.