Steep Consumer and Economic Costs With Limited Benefits

Licensing’s negative effects are not limited to workers. They also impact consumers and the wider economy, though these effects operate indirectly and thus can be harder to see. They stem, however, from the direct effects of limiting opportunities for workers. Indeed, one of the most consistent findings in licensing research is that by limiting entry, and thus competition, licensing leads to higher earnings for licensees 1  (earnings that, as noted above, nevertheless may not fully cover the costs of becoming licensed). And ultimately, consumers pay the price for those higher earnings through higher costs, limited access to services or both.

In just one example, researchers studied Colorado’s 1983 delicensing of funeral directors, an occupation still licensed by every other state. They found that licensing artificially inflated funeral directors’ wages by 11% to 12% and increased prices for consumers by 15%. In part, these higher prices appeared to result from licensed funeral directors pushing consumers toward more expensive burial options and away from cheaper alternatives like cremation, likely so they could recoup the costs of maintaining expensive embalming rooms,which licensing laws often require. 2  In this way, funeral director licensing subtly and almost invisibly makes consumers worse off.

The 2018 IJ study co-authored by Morris Kleiner used the methods of economics to tally up inefficiencies like these across the entire U.S. economy. He and his co-author estimated licensing may cost the American economy between $184 billion and $197 billion annually. Despite such costs, study after study has found that licensing does not necessarily improve services or otherwise make consumers better off, including several studies of occupations included in or similar to those in License to Work

To give a few examples, researchers have found that certain types of child care center licensing may reduce access to care for poorer families as it leads to fewer establishments in lower-income markets. Meanwhile, families in higher-income markets who can afford higher costs have access to higher-quality establishments, including more accredited child care centers. 3 Scholars have also found optician licensing has no discernible effects on quality, let alone public health and safety. 4  Studies of public school teachers have found licensing may not improve teacher quality or student outcomes. 5  And while there is evidence that early 20th-century licensing of midwives reduced maternal and infant mortality, 6 there is also evidence that restricting the supply of midwives reduces access to medical care. 7

Studies across multiple occupations have used consumer ratings as a measure of service quality and found that licensing (or stricter forms of it) does not improve quality. 8  This includes a 2022 IJ study of six occupations in License to Work—barber, cosmetologist, interior designer, locksmith, manicurist and tree trimmer. None of the study’s comparisons showed a quality improvement from licensing or stricter licensing, and the only statistically significant results found the opposite: Cosmetologist quality was higher in less burdensomely licensed New York than in more burdensomely licensed Connecticut and New Jersey. 9