What’s So Bad About Occupational Licensing?

Dec 4, 2019 | Blog | 0 comments

Why does accepting payment for a service make an otherwise-benign activity suddenly illegal? Accepting money is what distinguishes cutting a friend’s hair for free from a criminal mastermind who takes money for illegally performing cosmetology or barbering without a license. Have you ever paid for a bad haircut? Did the cosmetology license prevent it? Have you ever had a bad meal in a restaurant (which is, by law, highly regulated)? Have you ever had an outstanding home cooked meal prepared by someone without a license? So how much do licensing and regulation do to ensure high standards?

Occupational licensing is something of a pet peeve for us here at the 1889 Institute. We devote a whole section of our website to it. Why do we care so much?

The Institute for Justice estimates that occupational licensing costs consumes an average of $203 billion per year nationally. Licensing undeniably hurts the economy through deadweight loss – when the labor market is distorted leading to inefficiencies such as people being in suboptimal jobs.

But there is a simpler case against licensing, and it doesn’t involve complicated math or economic reasoning. It’s simply wrong. One of our most fundamental freedoms is the right to earn a living. It is explicit in the foundational document of our republic: “among these are life, liberty, and the pursuit of happiness.” That final phrase encompasses both the right to own property, the right to make use of it, and the right to one’s own labor. While there have always been limits to what one can take money for (murder for hire has always been off limits) by and large, people should be able to pay a professional – or an amateur – for services they would prefer not to perform themselves. And people should be similarly free to offer these services without a permission slip from their state government.

In Oklahoma, our constitution makes even more plain the idea that people should be free to work. Section II-2 declares that “All persons have the inherent right to life, liberty, the pursuit of happiness, and the enjoyment of the gains of their own industry.” This should be read as both a protection against socialism, and a right to earn a living.

Licensing puts up barriers to entry into the licensed field – that is, it makes it harder to start a new job. It takes time and money to get a license. These barriers disproportionately impact those who already have a low income. Think of it as a tax on the American dream.

While licensing arguably provides a shorthand way for consumers to know who is good at a job – or at least who was once competent enough to pass a government test at least tangentially related to a job, there are better ways of informing consumers that do less harm to the economy and actually provide consumers with better information. There are already websites that review professional service providers. This should be sufficient for any number of currently licensed occupations where the stakes are low. If your only fear is a bad haircut, good reviews should be enough.

For higher stakes services, something like 1889’s proposed Private Certification legislation would allow consumers to see different levels of proficiency – a private certifier would have incentives to offer testing that shows a practitioner is actually able to do various tasks related to their job. This would also give practitioners options when it comes to certification. Competing certifiers will stake their reputations on the level of service their practitioners provide, and they will have ample incentive to ensure their licensees offer outstanding service, lest their certifications be seen as worthless to consumers, and then to practitioners who will turn to a competitor with a better reputation.

The Oklahoma Legislature should work harder to reduce occupational licensing, and end this tax on the American Dream.

Mike Davis is the 1889 Institute Research Fellow. He can be reached at mdavis@1889institute.org.