Episode #225: The Real Monopolies: Occupational Licensure

In 1950, one out twenty occupations required some type of licensure. Today, it is almost one out of three. There are three levels of occupational licensure:

  1. Registration

  2. Certification

  3. Licensure

Political organization is a far better predictor of licensure than the danger the profession poses to the public (measured by liability premiums).

Some Suggested Reading:

One book that really changed Ron’s mind on this topic is The Rule of Experts: Occupational Licensing in America , S. David Young, 1987 (CATO).

President Obama was likely the first president to ever discuss occupational licensing in a public speech (speech before national Governors’ Assn), and his Council of Economic Advisors issued a report, which included 80 pages that are highly critical of occupational licensure.

George Bernard Shaw: “All professions are a conspiracy against the laity.” Economists have documented the following effects of licensure:

  • Limit consumer choice

  • Raise consumer prices

  • Increase practitioner income

  • Limit practitioner mobility

  • Deprive poor of adequate services (rich drive, poor walk)

  • Restrict job opportunities for minorities, older workers

  • Stifle innovation and creativity—had retailing been subject, supermarkets, big box, Amazon could have never happened

Thomas Edison had little formal education and could not have been licensed as an engineer under today’s guidelines. Frank Lloyd Wright would not qualify to sit for the architect’s certifying exam. Cranks, crackpots, and outsiders bring innovation.

Colonial America Cotton Mather and his fellow clergyman fought to establish inoculation as a cure for small pox: their leading opponents were doctors.

The first law in the USA was in Virginia in 1639, which regulated physicians fees. The second law regulated the quality of physicians service in Massachusetts 10 years later.

The American Medical Association (AMA) was formed 1847, and by 1900 every state had mandatory licensing law.

Most licensure imposes experience requirements—usually an arbitrary length. Until courts stopped it, it took longer to become a master plumber in Illinois than to become a Fellow of the American College of Surgeons.

Citizenship and residency requirements are also part of licensure. Many of these began in the 1930s as European refugees came to the USA.

More Suggested Reading:

Another great book is The Right to Earn a Living: Economic Freedom and the Law , Timothy Sandefur, 2010 (CATO).

A Louisiana law licensed florists. It requires a one-hour written exam and 3-hour performance exam that tests on “harmony” and “effectiveness” of floral arrangements.

Since 2000, fewer than 50% have passed!

One witness testified in court in a case that was challenging the licensure law: “I believe that the retail florist does protect people from injury…We’re very diligent about not having an exposed pick, not having a broken wire, not having a flower that has some type of infection, like, dirt that remained on it when it’s inserted into something they’re going to handle, and I think that because of this training, that prevents the public from having any injury…”

This doesn’t pass the laugh test. However, it did pass the “rational basis test.”

Cause and Effect:

In 2007, psychics in Salem, MA lobbied for licensing as a requirement to protect the public. But it is literally impossible to be a competent psychic.

In 1881, the National Burial Case Association set prices for coffins across the industry. Two years later, the National Funeral Directors Association fixed the price of adult coffins at $15, a large sum in those days. For a wooden box your kid could make in wood shop.

Interior designer license is one of the most difficult to earn. Only three states and Washington, D.C. offer it. It requires 2,190 days of education & experience (6 years)!

They argue that carpets could begin sparking infernos, porous countertops could spread bacteria, mis-chosen jail furnishings can be used as weapons.

In Illinois, barbers and manicurists are licensed, but not electricians, even though shoddy electrical job could burn down your neighborhood, but your hair will grow back.

Let’s Talk Liberty and Freedom:

This is not just a dollars and cents issue, it’s a liberty and freedom issue. One doesn’t have to ask permission to exercise one’s rights. The right to earn a living: marry, travel, have children, (drive), worship, etc.

Even the Magna Carta protected the right of “any man to use any trade thereby to maintain himself and his family.”

This right to earn a living was transformed into a privilege that could be revoked whenever politicians decided that doing so would be a good idea.

In License to Work: A National Study of Burdens from Occupational Licensing , Dick M. Carpenter, Lisa Knepper, et. al., they describe a new occupation: Permit Expediter. In Los Angeles they exist for helping restaurants comply with all of their licensing. In Washington, D.C. former Consumer and Regulatory Affairs bureaucrats help with licensing.

But in Chicago, Permit Expediters are so common, they have their own license!

The book also studied 102 low-income occupations, such as: Interior designer, shampooer, florist, home entertainment installer (8 months), funeral attendant, tree trimmers (1+ year), shoe shiners (Newark).

On average, states license 43 occupations (LA = 71/102, OR = 59; WY = 24 fewest).

CA licenses 177 job categories and Hawaii imposes the most burdensome requirements, while PA has the lightest.

Most of the 102 occupations are practiced somewhere without licensure or widespread harm.

The average cosmetologist requires 372 days training while the average EMT requires 33 days.

One argument made in favor of licensure is asymmetric information, but that is true in a lot of markets (houses, cars, etc.). Information will never be perfect; it’s costly to acquire.

Reputation is stronger than regulation. And of course there is always tort law.

Milton Friedman wrote his PhD thesis with Simon Kuznets, Income from Independent Professional Practice (NBER, 1945). One excuse he constantly heard from the medical profession was: letting too many people in would lower incomes to such an extent that doctors would resort to unethical practices to increase their income.

Friedman replied: “This has always seemed…objectionable on both ethical and factual grounds. It is extraordinary that leaders of medicine should proclaim publicly that they and their colleagues must be paid to be ethical.”

Another excellent book is Bottleneckers: Gaming the Government for Power and Private Profit, by William Mellor and Dick M. Carpenter II.

The Chairman and founding GC of Institute for Justice, and director of strategic research, www.ij.org.

They define Bottlenecker as: A person who advocates for the creation or perpetuation of government regulation, particularly an occupational license, to restrict entry into his or her occupation, thereby accruing an economic advantage without providing a benefit to consumers.

Justice William O. Douglas: “The right to work is the most precious liberty that man possesses.”

Conclusion: these laws really hurt the poor and minorities, exacerbate inequality, and even harm kids (can’t have a lemonade stand).