The Licensing Scam

While Trump’s economic agenda seems to have stalled in Congress, it has made gains in the regulatory arena.  Most recently, Labor Secretary Alexander Acosta added his department’s weight to the effort.  In a speech to the Denver conference of the American Legislative Exchange Council, he pressured states to rid themselves of needless, anti-competitive licensing laws.  Of course, Washington can only do so much in this area.  Licensing is almost always a state matter.  Still, pressure from the feds is pressure indeed, and any progress on this front should heighten prospects for growth and employment.

None of this ignores the importance of some licensing laws.  Acosta and other reformers know well that the public has an interest in demanding a minimum standard of skill and training for some occupations. The public would of course eventually learn about incompetence anywhere, but the cost of information, to use a term popular among economists, is simply too high where medical doctors, pharmacists, airline pilots, and the like are concerned.

Arguments for public welfare fall apart, however, when the licensing extends to other occupations.  And it has.  Many states now have strict licensing requirements for beauticians, cosmetologists, interior designers, eyebrow threaders, hair braiders, landscape contractors, tour guides, funeral attendants, scrap metal recyclers, and many other ways that people make a living.  To be sure, incompetence in these areas can do harm, but not sufficient harm to warrant the elaborate state licensing that has developed.  Rather than protect public welfare, these laws protect the interests of those already established in the occupation.  They reflect concern for the public less the lobbying power of those established interests.  This is the area of Acosta’s concern.

Worse than useless, such laws do a great deal of economic harm.  They limit job prospects, often for the least advantaged in society.  To take an admittedly extreme example, Florida requires more than 2,000 days of training to license an interior designer.  Assuming such training occurs on a normal academic calendar, that amounts to eleven years of specialized training to practice an otherwise harmless occupation, about as much as an MD.  Certainly, an aspiring high school graduate would find the required tuition, much less the time involved, an insuperable obstacle.  Multiplied across many states, these laws have imposed tremendous disadvantages on hundreds of thousands, maybe millions who would otherwise have had a path to improve their lot in life.

The harm does not stop with this.  By suppressing competition, such laws give existing practitioners the ability to charge higher prices for their services.  The general public suffers accordingly.  A recent study by the Brookings Institute estimates that licensing laws raise the cost of services by between 3 and 16 percent. More, because licensing laws vary greatly from state to state and few states recognize another’s credentials, they interfere with the efficiency of markets by discouraging the movement of businesses and individuals.  That same Brookings study calculates that licensing laws have reduced interstate mobility 15 percent generally and over 20 percent among younger people.

And these burdens have grown over the years.  The Labor Department late in the Obama administration determined that whereas only 5 percent of jobs in this country required permits during the rapidly growing decades of the 1950s and 1960s, today one position in four requires a license of some kind, one in three by some definitions.  At last count 1,100 occupations in the United States required a license in at least one state and 60 in all 50 states.  The implied economic and job-growth impediments may not account for all the economy’s problems or even most of it, but they no doubt have contributed.

Though Secretary Acosta can only exert pressure, there are signs that this destructive tide may be turning.  For one, the reform push clearly has bipartisan support.  It was, after all, the Obama Labor Department that first framed the problem.  It was also under this administration that the Federal Trade Commission (FTC) successfully sued in the Supreme Court against North Carolina’s rule forbidding anyone but a licensed dentist to whiten teeth. Though the court’s decision was narrowly framed, it nonetheless has prompted many states to review their practices.  Mississippi has led, pushing to take control of licensing boards away from industry groups and place it in the governor’s office.  Other states have shown less zeal, but review and reform efforts have emerged in Iowa, Kentucky, Indiana, Arizona, Missouri, Nebraska, Wisconsin, even Illinois.   Now, in a very different administration, Secretary Acosta seems to have struck when the proverbial iron is hot.  If his efforts can generate further movement in these states and extend it to others, he will have done much for the economy and jobseekers.



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