Occupational licensing is one the biggest issues in labor economics today. More than 29% of workers need a government-issued license to work. That represents a seven-fold increase from the 4% rate of licensed workers in the 1950’s. It also dwarfs today’s rates of unionism at 13% 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.
Fortunately a growing number of state legislators are tiring of the endless parade of rent-seeking trade associations. To help them, the Institute for Justice has written model legislation that creates a statutory right to an occupation. To ensure that regulations are targeted at protecting health and safety, the legislation requires legislators to find real harm before they enact legislation and to use the least restrictive means to address the harm. Similarly, it says to licensing boards that they too should find specific harm before issuing cease-and-desist letters. Finally, it says to judges that the burden falls on the government to justify restrictions on the right to pursue a legal occupation.
This shift in the regulatory landscape will stop the growth of additional barriers-to-entry in occupations, increase jobs and competition, and lower costs to consumers. It is a win-win situation for everyone except trade associations and lobbyists.