Aspiring Workers and Consumers Pay the Price

The benefits of licensing to existing practitioners come at a cost to aspiring workers and consumers. To work in licensed occupations, aspiring workers must fulfill the government’s requirements, which is often a tall order in terms of both time and money. People aspiring to work in licensed beauty and personal care occupations, for example, generally face fees, exams, and hundreds of hours of expensive schooling, among other hurdles. ¹ A 2021 Institute for Justice study found that, as of the 2016–2017 school year, the education required for cosmetology licensure cost more than $16,000 on average and took about a year to complete for students graduating on time. Aspirants also typically incurred significant student loan debt to finance it, borrowing over $7,300 on average. ²  

Aspiring workers fulfill these requirements believing they are investing in their futures, but research suggests these investments often fail to pay off.

Aspiring workers fulfill these requirements believing they are investing in their futures, but research suggests these investments often fail to pay off. For example, the 2021 IJ study found that cosmetologists were earning only around $26,000 a year on average—less than restaurant cooks, janitors, and concierges, occupations without costly and burdensome state licensure or state-mandated education requirements. ³  Other research finds barber and beauty school programs frequently provide a negative lifetime return on investment: 86% of the time, the costs of these programs are greater than any increase in earnings over a worker’s lifetime. ⁴

Aspirants who cannot or do not want to fulfill licensing requirements are shut out of the occupation. With some level of skill, if not formal training, some may decide to work in the occupation illegally, putting them at perpetual risk of legal sanctions if detected. These sanctions can include heavy fines and even jail time. ⁵  To avoid detection, they may not risk advertising their services or building a network and, as a result, have a less reliable source of income compared to their licensed counterparts.

Other aspirants shut out by licensing may reasonably decide to pursue a different, unlicensed or less onerously licensed, occupation—perhaps one requiring similar skills. Regardless of how aspirants feel about this, it distorts the labor market, resulting in spillover effects: Research has shown that licensing one occupation depresses wages in occupations requiring similar skills that have lower barriers to entry. ⁶  More simply, as those shut out by a license move to other occupations, wages in those fields go down.

Consumers also pay the price for licensing. Due to reduced competition, they enjoy less choice and pay higher prices in the market for services whose provision requires a license. ⁷  This is despite evidence that a service provider’s licensing status is not a major factor in consumer decision-making. Instead, consumers are more sensitive to price and reputation. ⁸ Nonetheless, consumers are forced to subsidize the licensing system, paying a premium for services that, as I discuss below, are no better than they would be without licensing.