Sep 9, 2015
Occupational Licensing Is a Scam
Government restrictions on who can enter an occupation don’t protect consumers, but rather licensees’ bottom lines.
A recent White House report, prepared by the Department of the Treasury Office of Economic Policy, the Council of Economic Advisers, and the Department of Labor, contends that existing licensing requirements are overly burdensome, too often out of “sync with the skills needed for the job.” “[L]icensing,” the report says, “can offer important health and safety protections to consumers, as well as benefits to workers,” but its reach has extended too far, hindering worker mobility and economic growth and yielding overpriced services. The report vindicates the arguments of libertarians, arguments treated for so long as the idle reveries of a fringe ideology.
Libertarians have long argued that expensive licensure regimes are often, even usually, the product of protectionist motivations, designed not to serve consumers by ensuring high professional standards but to insulate the licensed group from outside competition. Arbitrary limitations on competition harm consumers, subjecting them to high prices and low-quality services—the natural and inevitable results of constraining the number of service providers. The blight of occupational licensing has spread rapidly in recent decades, extending its grip to over 1,100 occupations at the state level alone, according to the White House report. Today, vocations from psychics to dog groomers are subjected to arbitrary training and permitting requirements, often unrelated to the jobs themselves. Apart from the personal costs, a 2007 Reason Foundation study found that the costs to the American economy were “between $34.8 billion and $41.7 billion per year.” Further, since professional licensure is typically the domain of local or state authorities, relocation presents challenges that may be insuperable for a given professional: costly obstacles like new fees, continuing education requirements, and even reexamination. As the White House report observes, the data on worker mobility suggest that licensing is often the decisive factor in individuals’ decisions not to relocate, decisions that can have dire consequences for those individuals and weaken the economy at large. The ability to move freely from place to place, to cross borders into other states and countries (we’ll set immigration aside for now), is an essential aspect of a proper free-market economy.
Libertarians believe that an individual’s right to select her occupation, to earn a living in the manner of her choosing, is a fundamental one, entitled to the most exacting standard of legal protection. Under current constitutional jurisprudence, however, these basic economic rights are afforded so little protection that governments can restrict them practically without limit. Refusing to consider underlying motives or the context provided by empirical data, courts ask only whether occupational licensing rules are rationally related to a legitimate government interest. Countless judicial decisions have given meaning to this rather opaque legal terminology, the results proving that judicial review of occupational licensure programs is in fact a hollow, perfunctory gesture. While constitutional law may not currently require any narrow tailoring of licensing rules, the White House report states that for these rules to accomplish their stated health and safety goals, they must be “narrowly tied to the specific public health and safety concerns of the work.”
The report considers some reasons that licensure rules “tend to drift from these objectives,” citing attempts to raise standards and the misapplication of existing requirements. Public choice theory has much to teach us about the explosion of occupational licenses, revealing an answer to the most glaring question: If these rules stunt economic growth and are demonstrably harmful to consumers, then why do they continue to proliferate? Generally, public choice theory is the idea that we should use economic thinking, examining incentives and competing interests, to better understand political institutions and public policy outcomes. Stripping the question of the ridiculous, romantic assumption that public policy is automatically the instrument of “the common good,” we quickly see that government licenses, permits, and certifications are in fact quite rational for the protected interests. They are one of hundreds of forms of political rent-seeking, efforts to secure market power and income streams without having to suffer the struggles and uncertainties of actual free market competition. Often proponents of occupational licensing simply assume away its obvious public choice problems—or else are overconfident in the ability of regulating bodies to attenuate these issues through carefully crafted rules. But more rules are just more opportunities for political gaming by savvy insiders. As Paul Larkin argues in his paper “Public Choice Theory and Occupational Licensing,” “Today, we see that government intervention causes political market failures in furtherance of private interests.”
The notion that occupational licensing is a tool for fortifying the interests of a privileged class is not new. The eminent American libertarian Lysander Spooner waged an impassioned war on professional licensure for lawyers, arguing that it was a needless privilege, a set of peremptory rules that unfairly disadvantaged the poor. In an 1835 letter to the Massachusetts legislature, published by the Worcester Republican, Spooner attempted to show that the existing rules made access to the legal profession “actually impracticable” for “the well-educated poor” — a grouop, he argued, “more likely to excel in [the profession] than any other.” Given the opportunity cost associated with years of legal apprenticeship, few but those of independent means could afford to endure the long road to bar admission. Moreover, even one “fortunate enough to obtain credit and assistance” would “come into practice with such an accumulation of debt upon him as the professional prospects of few or none can justify.” Spooner’s radical condemnations of the policies of his own time astutely previse the student loan crisis of the present. The steady accumulation of required academic credentials and licenses has made it impossible to embark on a professional career without amassing crippling mountains of debt. But instead of attending to the underlying problems — committing to a policy of retrenchment, limiting the number of licenses and regulations — government compounds them by spilling additional taxpayer dollars into failed programs.
The libertarian contention is simply that force and compulsion are unnecessary and indeed quite undesirable in the attempt to craft policies that will protect consumers and ensure quality professional services. Voluntary membership associations, ratings and review services, and noncompulsory, competing accreditors are more than capable of furnishing the information that consumers want and need to make safe, smart decisions. Particularly in the Information Age, there are ever-expanding multitudes of mechanisms through which consumers may connect with each other to exchange information, trading cautionary tales and recommendations alike. Even occupational licenses themselves are not necessarily at variance with the libertarian insistence on peace and voluntariness, provided, of course, that the licenses are not legally mandatory. Nothing in libertarian principle prevents a group of physicians, for example, from establishing their own membership organization, sustained by members’ dues and issuing licenses or other certifications. Perhaps some of these organizations would earn a reputation for excellence, their membership including the leading doctors in the city, region, or country. As in any industry or market, certain brands would become synonymous with excellent service, and certain others would provide consumers with a discount or economy service. Genuine consumer protection requires a robust, competitive marketplace and a legal environment that does not place undue burdens on the right to earn a living. Breaking the licensure cartels’ oppressive hold on professions of all kinds is an important step in the direction of real economic opportunity, of an economic system that is both free and fair.