License Requirements Hinder Small Businesses

June 17, 2014

According to the results of a recent survey, processional licensing requirements are the biggest challenge faced by small businesses today.

Jared Meyer, policy analyst at Economics21, explains the toll that licenses take on workers. Because licenses require a person to have government permission before he begins to practice an occupation, it costs more -- both in time and money -- to enter an industry. Those who can afford to enter the industry can charge higher prices to consumers, and the complexity of many states' permitting procedures can be too much for businesses to deal with. 

Business services firm Thumbtack surveyed 13,000 small business owners. According to the survey:

  • Half of the respondents reported that they were subject to at least one licensing requirement. Such a response is not unusual, writes Meyer, as four out of every 10 American workers need government certification or licensing to work in their fields.
  • Utah, Idaho, Kansas, Virginia and Texas were ranked the top states for small business-friendly licensing requirements. Notably, the 2013 GDP growth rate in these top five states was twice as high as the five bottom-ranked states: Rhode Island, Connecticut, Illinois, Massachusetts and California.

New businesses create 3 million new jobs annually, and they are responsible for nearly all new net job creation. Policies that make it difficult for entrepreneurs to launch new businesses, says Meyer, have an especially detrimental impact on the U.S. economy.

According to the Thumbtack report, nearly two-thirds of net new private sector jobs over the last 20 years have come from small businesses.

Source: Jared Meyer, "An Even Larger Headache Than Taxes for Small Businesses," Economics21, May 13, 2014.

 

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