Occupational Licensing is Unsafe for Prosperity

August 06, 2012 J

By: Casey Given

Do you think that interior designers should need a license to decorate your home safely?  Three states and the District of Columbia do. What about professional shampooers to avoid the hazards of soap suds? Five states have such licensing requirements, and the same absurd constraints often apply to other “dangerous” jobs like florists, home entertainment installers, auctioneers, and hairbraiders.

As silly as these examples may sound, occupational licensing is a very serious hurdle that state governments make their entrepreneurs jump over, hindering prosperity along the way. These requirements have become especially burdensome in recent decades, as a recent study by the Institute for Justice points out. Whereas “[i]n the 1950s, only one in 20 U.S. workers needed the government’s permission to pursue their chosen occupation… that figure stands at almost one in three” today.

Economists often warn states about the repercussions of imposing high taxes and heavy regulations. These items work together to increase prices for consumers and discourage potential residents and companies from bring their commerce to a state.  Simply put, they will lose lots of money.

The same logic applies to occupational licensing. Several studies show that license requirements reduce migration between states because licensed workers avoid repeating the onerous process in another part of the country. It’s hard to blame these citizens for staying clear of states with burdensome licensing procedures. After all, the average license requires “paying $209, passing one exam and completing more than 275 days, or about nine months of education and training” according to IJ’s study, hurting lower-income workers who cannot afford these unreasonable startup costs.

Ironically, many of these anti-business burdens are imposed by businesses themselves seeking to reduce competition by outside groups. Often times, self-interested industries lobby their legislators to pass hefty licensing requirements that effectively only established businesses can afford, thereby crowding out competitors from entering the market. Perhaps the worst example of this cronyism is the American Society of Interior Designers’ relentless lobbying for occupation licenses over the past 30 years, despite the fact that there have been nearly no reports of injuries inflicted from design in the history of the profession. Thanks to ASI’s success in Florida, Louisiana, Nevada, and the District of Columbia, prices for interior design services in these localities are astronomically higher than in states without such a licensing requirement. Another IJ study reported this profit gap to be $72,000 per 10,000 customers in 2002!

With rent-seeking businesses reaping big gains from occupational licensing, it’s unsurprising that repealing these anticompetitive regulations have not been easy. Florida, for example, succumbed to industry pressure to crowd out competition in 2011 through failing to pass a bill that would have repealed licensing requirements for 20 occupations including hairbraiders and interior designers.

Despite the perverse political incentives, legislators should remember that the costs of occupational licenses are ultimately imposed on consumers in the form of higher prices and lower-income entrepreneurs in the form of unemployment.

Granted, occupational licensing may play a necessary role in professions that are dangerous or require years of professional training like emergency medical technicians or teachers. However, the vast majority of jobs today don’t need such ridiculous regulation to remain safe. Instead, state governments could attract more citizens and commerce by repealing their unnecessary occupational licensing requirements, thereby fostering an economic environment where greater competition can flourish, leading to lower prices and higher employment. The unlicensed shampooers of America would greatly appreciate regaining their right to make a living.

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