In 1787 one could get most any job or open most any business without seeking the government's permission to do so. Today, nearly one in three U.S. workers needs a license to pursue their chosen occupation, and starting a new (legal) business without the involvement of both a state-licensed attorney and a state-licensed accountant is a fool's errand. Two recent studies do much to explain the rapid growth of the underground, apolitical economy that we explored in The Apolitical Economic Superpower and the rest of the Phoenix Society series of columns.
The Institute for Justice recently released Occupational Licensing in 50 States and D.C., a study examining the impact of licensing on 102 low and moderate-income occupations. In 1950, only one in 20 U.S. workers needed a license to pursue their chosen occupation. Today, the ratio approaches one in three.
The pragmatic argument is that licensing protects the consumer from the incompetent and the ill-mannered, thus resting on the concepts of training and oversight. As for oversight, stories the likes of Bernie Madoff and the SEC, the Deepwater Horizon and MMS, and rat pellets in peanut butter are legion, but the training issues may not be so familiar.
As the IJ points out in their summary video, Emergency Medical Technicians "quite literally hold lives in their hands, yet 66 other occupations (on the examined list) have heavier licensing burdens than EMTs, including landscape workers, manicurists, and a host of contractor designations." Most of these occupations are unlicensed in most states; shampooers are licensed in only five states; interior designers in three, funeral attendents in only nine. Yet we hear no tales of interior design disasters claiming innumerable lives from the other 47 states. The summary video also discusses disparate training requirements across the states.
License to Work provides additional reasons to doubt that many licensing regimes are needed. First, most of the 102 occupations are practiced somewhere without government permission and apparently without widespread harm: Only 15 are licensed in 40 states or more, and on average, the 102 occupations are licensed in just 22 states—fewer than half. This includes a number of occupations with no self-evident rationale for licensure, such as shampooer, florist, home entertainment installer and funeral attendant.
On average, these occupations require that applicants pay $209 in licensing fees (excluding any required tuition), pass an exam and complete more than 275 days of training and experience, while one-third require more than a year. In contrast, the average EMT spends about a month in training. So why do so many low and moderate-income occupations have such relatively draconian training and licensing requirements? Let me offer a clue in the form of a restatement of the question. Why do so many low and moderate-income occupations have such draconian barriers to entry? Does that make it a bit clearer?
As we discussed in On Law and Sausages - SOPA, PIPA and Cronyism, there are at least two models of the legislative process. The Civics Class model informs us that legislation is passed to promote the common good, while the Cronyism model informs us that legislation is passed to promote the well-being of particular individuals or industries, quite often to the detriment of the common good. Occupational licensing appears to have little to do with public health and safety, and much to do with reducing competition to keep prices artificially high.
Concentrated Benefits, Reduced Costs examined the rationale behind lobbyist-represented special interests groups insofar as subsidies are concerned. However, the same model is often effective in raising barriers to entry around a particular industry, assuring that competition is restricted and prices can therefore be maintained at artificially-high levels through government-industry agency collusion.
A related study, the Thumbtack.com Small Business Survey, illustrates the impact these barriers to entry have on the formation and operation of small businesses.
Among other things, the survey asked how small businesses view various types of regulations, such as health and safety regulations, tax codes, zoning and licensing. Results show that small businesses care almost twice as much about licensing regulations as they do about tax rates when rating the business friendliness of their state or local government. Moreover, among those small businesses subject to special regulatory requirements—such as occupational licenses—the ease of compliance with these regulations was by far the best predictor of their view of the small business friendliness of their respective states.Let's look at one more example, that of African Hairbraiding, again courtesy of the Institute for Justice.
The District of Columbia government once threatened hairbraider Pamela Ferrell and her husband Talib-Din Uqdah with fines and jail time for practicing their craft without an unnecessary government license. But this year, the entrepreneurial couple celebrate their twenty-fifth year in business and the “little” shop the government once tried to shut down is thriving, providing opportunity not only for Ferrell and Uqdah, but for the dozens of women they’ve trained over the years who have now gone on to start their own businesses.Currently, seven states require hairbraiders to obtain a cosmetology or similar license, typically requiring 1,000 to 2,100 hours. In an additional 22 states, the law is silent, leaving the issue up to state cosmetology boards or investigators. Ten states have specialized licenses for hairbraiders. The link above includes a state-by-state summary to African hairbraiding legal barriers.
Now, if only the rest of the nation would learn from this and similar success stories and remove government barriers to honest enterprise now imposed on hairbraiders. D.C. once ordered hairbraiders to take 1,500 hours of irrelevant training to get into business. But now hairbraiders are braiding, customers are satisfied and the D.C. city government collects taxes from businesses that would otherwise have been forced into the underground economy.
Despite this and similar success stories in Arizona, California, Mississippi, Minnesota and Washington, other states continue to impose arbitrary and stiff licensing burdens on would-be hairbraiders—making no one happy except those protected by these government-imposed cartels.
There was a time when this Tireless Agorist would have railed against the stupidity of ridiculous licensing requirements, the collusion between various professional boards and government agencies that make this possible, and the excess costs to consumers that such requirements intentionally generate.
But that was before I noticed that all over the world, from Greece to Detroit to Hawaii and everywhere in between, people are learning to sidestep silly government restrictions and live their lives as they see fit, working around government in those places where it's impossible to work with it.
Overall, such regulations are proving an effective way for the government to recruit more members for the Agorist Underground. So all I'll say to government agencies, professional boards and others who promote micro-regulating every aspect of voluntary commerce between free individuals is "Keep up the good work!"
...and that's all I have to say about that.