Economics, Pethokoukis, Regulation

The terrible economic burden of occupational licensing

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One way government stymies entrepreneurs, particularly low-income ones, is through illogical and burdensome occupancy licensing laws. These laws and regulations are more about limiting labor supply and competition than ensuring the public’s health and safety. Cronyism meets cartelism.

As documented by the Institute of Justice, an emergency medical technician is required to get an average of 33 days of training. Yet in a 2012 analysis of license requirements for more than 100 low- and moderate-income occupations across America, IJ found 66 jobs with greater average licensure burdens than EMTs, including interior designers, barbers, cosmetologists, and manicurists. The average cosmetologist, for instance, spends 372 days in training.

These requirements to spend months in education or training, take exams, and pay fees make it “harder for people to find jobs and build new businesses that create jobs, particularly minorities, those of lesser means and those with less education.”

In a piece over at Vox, Evan Soltas, working off research by Alan Krueger and Morris Kleiner, notes that 30% of US workers are now covered by licensing schemes. As union membership has gone down, licensing has increased — with an interesting effect on inequality:

Connecting the stories of unions and licensing makes sense. Both are institutions workers created to raise wages — and occupational licensing seems about as effective as unions, raising wages by about 15 percent relative to what similarly-skilled workers earn in states where they’re not protected by licensing from competition.

Yet there’s something unions did that occupational licensing doesn’t, and that’s reduce inequality, Kleiner and Krueger find. Whereas unions tend to push up wages at the bottom and restrain them at the top, compressing the wage distribution, there’s no such effect for occupational licensing. Wage dispersion within a given trade is not effected by licensing.

In other words, the most successful workers will find that occupational licensing recreate the wage gains that unions once provided. But licensing seems to do little to help the bargaining power of the most vulnerable workers.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

11 thoughts on “The terrible economic burden of occupational licensing

  1. I think James is on to something but he’s a bit too general. I am a volunteer EMT and am amazed at how easy it was to get qualified and certified in PA compared to a barber.

    But to say that, quote, “These laws and regulations are more about limiting labor supply and competition than ensuring the public’s health and safety”

    Does anyone doubt the need for airline pilot licensing…or that of medical professionals like doctors, nurses and EMTs?

    Licensing requirements are an aspect of agency law where we delegate an agent to act on our behalf to ensure someone has the proper training to perform an activity. Pethokoukis is right that it’s used too often. BUT the radical conservative idea that ALL licensing is illicit is also bizarre.

    • I’m unaware of any conservative or libertarian school of thought putting forward the argument that All Licensing is Bad. As in, I’ve never once in my life seen, heard, read, or been informed of such an argument from the conservative ideology or the libertarian ideology.

      If this type of argument does exist, it’s more on the fringe than those who assert Bigfoot’s political affiliation.

      I have seen long-standing arguments, primarily from Libertarians, against the overuse of licensing, warning against the liberty and economic costs associated with the trend towards licensing every conceivable profession. The requirements for licensure occur in the legislatures and government agencies, which often don’t ask the basic question: “What is the real and positive benefit to the state/city/community of requiring _______s to be licensed?”

      • All licensing is anti-libertarian. It may be contrary to what most people believe to be “practical” or “effective” or “safe” for consumers, but it is still anti-libertarian.

        Twenty or thirty years ago it was not as difficult as it is today to describe what a libertarian is. Read “Anarchy, State, and Utopia” by Robert Nozick.

    • An EMT is one step above a chauffeur. Many are volunteers, the entire point of licensing them to the extreme is to make it impractical for volunteers. The licensing is to assist in the process of getting paid EMT’s. Most of these protocols were enhanced with the implementation of the E911 system, another tax grab that goes for many things other than the maintenance of the E911 system. As for licensing the other professions you mention, what good does it do? Bernie Madoff was licensed as were the pilots of flight 370. Not a week goes by without some doctor being sued for removing the wrong appendage or prescribing the wrong medication. Being certified by a trade group also has drawbacks. Union membership and training programs for years have been used to keep minorities from skilled trades. While I’m not advocating throwing the baby out with the bath water, what we have does little to insure quality non discriminatory actions. Why aren’t athletes licensed?

      • Nonsense. EMTs at one time WERE the only in the field medical support available, before paramedics. I assume you’re not an EMT, so I won’t belabor you with your ignorance about emergency medicine.

        And even though I’m a volunteer I don’t have the skills someone who does this every day does. Another example; I am a volunteer radio operator with the Coast Guard (an Auxiliarist.) I happened to be on duty a few years ago when the OOD stormed in complaining about the Reservists. Even people who volunteered a weekend a month and 2 weeks a year still weren’t at the proficiency level of those who did it for a living.

        As to the other professions…when’s the last time we had a plane crash in the US? What’s the quality of our medicine vs Botswana?

        As I pointed out, one role of licensing is agency…the delegation of evaluation of competence to those who know it. It’s plain comparative advantage economics…you do what you’re best at, which is where you make most money. Unless you have 50 PhD’s, you’re not competent in all fields where expertise is needed. It’s a matter of information.

        For some reason, many conservatives think information is free. In thermodynamics we learned this is not true because of Maxwell’s Demon. Conservatives have never been big on the laws of science.

    • As a former X-ray tech., it is quite clear that whatever the intents and purposes of those advocating licensing, the effects are the same as those advocated by any group of people who want to limit entry into the work force, without any attendant increase in benefits to the patients. In fact, such licensing is a hindrance to some of the most important patient-handling aspects of such health care services because it does not include any instruction in customer psychology. In economic terms, we have great opportunity cost.

      It doesn’t take two years to learn the X-ray profession, but state laws require it. The yearly “continuing education” is also a grotesque waste of time and money. It rarely contains anything of benefit to the patients. One of the CE courses I took included a book that a radiologist, who is an MD, used in pediatric medicine. Such information is useful to a doctor for diagnosis, but not to an Xray tech.

      • One reason to limit access is to ensure competence, including intellectual competence. Are the requirements too strict? Perhaps. But that’s hardly a…license…to do away with all licensing.

        • The facts that I provided in my post indicate that most of my time and activities in the two-year training program to obtain an Xray license, at least in Oregon, did nothing to ensure competence, whether practical or “intellectual.”

          The requirements were strict, but were academically strict. Academic rigorousness is no more required for the professional activities of a welder than it is for an Xray tech.

          Any licensing procedure that wastes time and money, and leads to barriers to job market entry by those who are not “academically” inclined should be done away with, and perhaps replaced with programs that actually train people for jobs, such as perhaps the more traditional apprenticeship programs. I can assure you that no Xray tech who knows the physics of how Xrays are created is necessarily a better Xray tech than someone who wastes time and money due to state requirements, learning that physical process.

          • My last sentence should be, “I can assure you that no Xray tech who knows the physics of how Xrays are created is necessarily a better Xray tech than someone who doesn’t waste time and money, due to state requirements, learning that physical process.”

  2. To answer Robert puharic, what possible value is there to barbers being licensed other than to restrict supply? When a medallion to drive a cab costs a million bucks, then it is pretty obvious that licensing is being used to restrict supply and increase costs. I’d be perfectly happy rolling back the licensing regime to 10% of the workforce from 30% we have now….

  3. Fortunately because of bloggers like you, Mr. Pethokoukis, the case against expansive preclearance licensing is gaining a lot of ground. I’ve seen similar advocacy at Marginal Revolution, Volokh Conspiracy, and others.

    Anyone interested in this further reading on this topic should consider:

    Walter Gellhorn, The Abuse of Occupational Licensing, 44 U. CHI. L.R. 6, 10-11 (1976).

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