Occupational licensing is one the biggest issues in labor economics today. More than 25% of workers need a government-issued license to work. That represents a six-fold increase from the 4% rate of licensed workers in the 1950’s. It also dwarfs today’s rates of unionism at 11% of workers and minimum-wage earners at 2% of all hourly-paid workers.
But licensing is more than big. It presents some significant public-policy issues. Licensing creates barriers to entry into occupations. In doing so, it shrinks the available number of jobs, lowers competition and increases prices to consumers by 15% or more. Unfortunately, these costs are not offset by additional consumer protection because licensing is generally an ineffective screen for frauds and incompetents.
Licensing also diverts resources to the political process. Trade associations and their lobbyists petition state governments for more regulations in order to increase the pay of members and the dues paid to association executives and lobbyists. Their interest in getting ever-more regulations reflects the public-choice problem that the benefits of regulations tend to be concentrated among the relatively limited number of licensees whose advocates prowl the halls of state capitols. By contrast, the higher costs are dispersed among millions of consumers who remain rationally uninvolved in the redistribution of wealth happening at state capitols across the nation.
The problems with licensing are noted in a report by the White House’s Council of Economic Advisors and research published by the Brookings Institution as well as IJ’s License to Work and Boards Behaving Badly.
Moreover, the U.S. Supreme Court has noticed the anticompetitive nature of occupational licensing. In its decision in North Carolina State Board of Dentistry v. FTC, the court held the licensing board will lose their immunity against antitrust litigation unless they follow state policy and are actively supervised.
To help states adopt good public policy and maintain board immunity, the Institute for Justice has written model legislation that ensures that regulations are targeted at protecting health and safety.
Adopting pro-competition public policy will stop the growth of additional barriers-to-entry in occupations, increase jobs and competition, and lower costs to consumers. In the process, it will reduce a state’s exposure to federal antitrust litigation and liability. It is a win-win situation for everyone except trade associations and lobbyists.