I have written before about occupational licenses and I may have given the impression that I am against all occupational licenses. Let me clear up that notion. I think that many occupational licenses are necessary to protect consumers' health and safety. On the other hand, I also think that governments commonly require licenses for jobs that do not seem to meet the health and safety standards. Using common sense, most of us would not consider some of these licenses necessary.
Occupational licensing is meant to be a beneficial exchange between the proper balance of freedom and order. Licensing is something that is done to advance public health and safety and to prevent fraud but it has been and is increasingly being used by old-guard interests to restrict entry into business of new competitors and reduce competition. This reduction in competition leads to higher prices and fewer options for consumers.
Some examples of business that must have licenses to operate are shampoo apprentices, florists, salvage vehicle dealers, equine massage therapists, and natural-hair braiders. Requiring licenses in this and many other fields is a misuse of public policy which favors the politically-connected.
The most recent attempt to block competition involves the ride-sharing services Uber and Lyft. Across the U.S. (and in Europe) the existing taxi and limo companies are attempting to use local government to keep Uber and Lyft out of the market. Miami, Chicago, Denver, Oklahoma City, are being asked to block or restrict ride-sharing by the incumbents. In Pittsburgh the only two taxi companies pushed the Mayor and the Public Utility Commission (the licensing authority) to have police write tickets to anyone giving a ride for pay that was not certified by the PUC. The Mayor, for the present time, has blocked this move. The PUC has granted temporary permission to operate.
The 2012 study “License to Work” detailed how licensing “often does not line up with the public health or safety risk it poses”. In the study of the 102 occupations licensed in the 50 states and D.C., “66 occupations have greater average license burdens than emergency medical technicians. The average cosmetologist spends 372 days in training; the average EMT only 33.”
Aside from costing consumers' more for some services and reducing the choices of the consumers, workers are hit with costly requirements including government-determined schooling, test, and paying fees before entering into a business. Several studies show that female-dominated business have some of the biggest and most irrational licensing requirements which prevents low and middle income women (financially-vulnerable) from starting to work their way up the economic ladder. An example of this is a new business in Iowa that does hair blow-drying. It may be closed because the workers do not hold a cosmetology license (2,100 hours of education and training and state testing required for the license). Other examples are a number of African hair-braiding business across the U.S. that have been shut down because of the same cosmetology requirements and licensing as a florist before one can arrange flowers for pay.
An interesting report from Jared Meyer at e21 (The Manhattan Institute) states that when small business owners are surveyed the top complaint is government licensing and permitting (even more so than taxes).
One way that licensing and permitting impacts the economy, according to economist Morton Kleiner, is that “licensing results in 2.85 million fewer jobs with an annual cost to consumers of $203 billion.”
What can be done? Under Ronald Reagan new rules at the federal level were instituted that demanded “Evidence-based justification” for any new rule. This review process is not perfect and has not been used as much as it should but it has encouraged efficiency and it has prevented more harm (somewhat). It seems to me that this type of regulatory review law should be passed in each state. Maybe you could suggest it to your state Representative, or someone who is looking for a job as your state Representative, the next time he or she shows up at your door looking for your vote.
Will this solve all the problems? No! But maybe it will start the ball rolling?
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