Funeral services necessarily involve a difficult time for the consumers who need them, and the pain of loss can often be compounded by the logistical expenses involved. Unfortunately, the cost of funeral expenses is significantly higher when occupational licensing is involved.
In a new study published in the June 2017 edition of the International Review of Law and Economics, Brandon Pizzola and Alexander Tabarrok use a “natural experiment” to show that occupational licensing requirements on funeral service providers increase the cost of workers and services. Conversely, the lack of such requirements decreases costs.
Colorado delicensed its funeral services industry in 1983, providing researchers an opportunity to compare the effects of the regulatory change in the state to national developments. Unsurprisingly, Pizzola and Tabarrok found that funeral costs fell in Colorado, compared with the rest of the United States, because licensing causes a “wage premium” of 11 to 12 percent due to lack of competition. This finding echoes other research that has shown licensing requirements in other industries lead to similar spikes in cost. Insiders, in funeral services and other industries, often support licensing requirements precisely for this reason: Licensing creates artificial “job protection” by making it harder for competition to drive down costs.
Perhaps more interestingly, Pizzola and Tabarrok also found that overall funeral prices for families per death fell even more after delicensing “than the fall in wages might suggest.” In other words, it became more affordable to bury a loved one in Colorado after 1983 because the entire funeral industry shifted after delicensing. Not only did industry labor costs decline, but the funeral services that were recommended to families and that they ultimately chose changed. Under licensing requirements, funeral directors are 15 percent more likely to encourage burial and discourage cremation, which is less costly. Thus, funeral licensing leads families to pay more for the staff they deal with, and the staff in turn leads families to pay for more expensive funerals.
As Colorado has shown, there is a better, more affordable way to say goodbye to lost loved ones. Although delicensing the funeral industry led to significantly lower costs overall, researchers found no evidence of any decline in the quality of funeral services.
This latest report bolsters a growing national movement to reform occupational licensing requirements. Roughly one out of every four American workers requires permission from the government—whether in the form of a license or certification—to do his or her job. This marks a dramatic increase from the five percent of workers who faced such requirements in the 1950s. Such excessive and unnecessary barriers to entry make it harder for hardworking people to earn an honest living without providing any added value for consumers.
Colorado lawmakers made the right choice in rolling back licensing restrictions on funeral services 34 years ago. Lawmakers across the country would be wise to learn from that example.