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The White House makes a surprising plea for licensing reform

By   /   August 4, 2015  /   No Comments

Photo by: Shutterstock

Photo by: Shutterstock

By Logan Albright | Watchdog Opinion

Occupational licensure is one of those relatively obscure topics that it’s hard to get people fired up about. Most people are not aware that their barbers, their florists, their personal trainers, all need permission from the government to practice their professions. Even when they do know, most people don’t regard it as a big deal. The mindset that consumer protection trumps all other concerns is pervasive, even when this assumption fails an objective cost benefit analysis.

Occasional stories of professionals who fail dramatically at their jobs are far more visible than the sad tales of unemployed workers forbidden by law to earn a living. We don’t often hear about the talented decorator who might have made a career of it if not for the burdensome license requirements, or the immigrants with a knack for hair braiding who can’t charge for their services because they don’t speak English well enough to make it through beauty school.

Lonely indeed is the commentator who tries to highlight the perils of licensure requirements to an indifferent world, but every once in a while, a ray of hope shines forth from the most unlikely of places. The recent White House report on occupational licensing highlights some of the worst problems with licensing practice, and makes some recommendations for policymakers to move towards a more sensible set of guidelines.

Let’s begin with examining the harm licensing laws do to consumers and producers alike. The most obvious problem is that license requirements increase the barriers to entry and make it harder for individuals to work in their chosen field. Lengthy education mandates, onerous testing, and all the accompanying fees make getting into a licensed profession a costly business. The White House report highlights how these policies disproportionately affect immigrants, where the language barrier can be an issue, and where their qualifications from their native countries may not transfer to the United States. In short, licensing means that those with the most money, time, and political clout will have a leg up on others who want to enter the field.

This is the reason why most established businesses love the idea of licensure. Using government regulation to hobble potential competitors without the resources to comply with the regulations is often much easier than trying to out-compete newer, hungrier firms in an open marketplace.

Photo by; Shutterstock

Photo by; Shutterstock

This isn’t only bad for workers, however; it’s bad for consumers as well. The reduced competitive pressure caused by licensing requirements means incumbent firms can charge higher prices and offer poorer quality services than would otherwise be possible. Empirical research proves that this effect is significant. The White House report notes that stricter licensing of dental hygienists resulted in a 7 to 11 percent price increase, and that additional requirements on Vietnamese manicurists in one city caused the number of workers to fall by 18 percent, to take just two examples.

Obviously, the counterargument to all of this is that consumers need to be protected from unqualified workers who could potentially harm them. While there is some merit to this concern in fields like medicine or dentistry, it’s hard to see how much damage an unlicensed florist could really do. In any case, there are many alternative approaches to address consumer safety in a way that is less damaging to labor markets.

The one that seems to make the most sense – and not coincidentally requires the least government intervention – is to replace licensing with voluntary certification. Professionals could choose to get certified as qualified in their field, whereafter they could enjoy the ability to charge more for their services. On the other hand, consumers who cannot afford the higher prices would have the option to patronize lower quality services at a corresponding lower cost. This increase in choice would reduce unemployment and increase consumers’ ability to afford previously out of reach goods and services.

Other options recommended in the White House report include simple registration, which makes it easier to process consumer complaints against negligent practitioners, and direct regulation. In other words, anyone could open a business without the need for a license, but would be expected to comply with health and safety regulations and be able to pass spot inspections. All of these options would reduce barriers to entry and improve upon the current situation.

Of course, since most licensing is done at the state level, this federal report is unlikely to have much of an immediate impact on public policy. However, it is extremely refreshing to see serious people finally addressing this important issue, especially from a White House that has been frankly hostile to small business and entrepreneurship. Hopefully this is the start of a longer conversation on the need to start rolling back licensing requirements and getting Americans back to work.


Logan Albright is a Research Analyst at FreedomWorks, a grassroots organization of over 6.9 million members.