Why Occupational Licensing is Bad Policy

Occupational licensing enjoys some political appeal under the guise of consumer protection, but it fails to achieve this. Instead it reduces employment, gives consumers fewer choices and higher costs, protects existing business from competition, and keeps out qualified people.

Now, if a bipartisan bill (Licensing Relief and Job Creation Act) before the Minnesota legislature passes, the government will be required to show there is a real threat to public health and safety before enacting a licensing law.  Furthermore, if such a threat is found, the legislature must choose the least restrictive means to address the problem.

A Legislative Backgrounder on the bill, prepared by Lee McGrath of the Institute for Justice, which is active on this issue, gives an example of why the state's current occupational licensing must be replaced. After a tornado devastated parts of Minneapolis, a longtime customer asked Jim Dolphy to remove two fallen trees from his property. Because Jim didn't have a license for tree trimming and removal, he was fined $250 and prevented from completing the work.

In Minnesota, occupational licensing boards are made up of mostly licensees. There are public (non-licensed) members on board but rarely do they constitute the majority of the board. Obviously, they have every incentive NOT to certify new members, in order to keep the shared monopoly to themselves and keep newcomers from offering better prices to consumers.

Academic studies show licensing laws reduce competition and raise consumer prices by about 15 percent in Minnesota. Consumers are forced to pay up to $3.6 billion more for services, and economic growth is reduced by $1.1 billion annually.

This is not just a Minnesota problem. Nationwide 29 percent of all workers must obtain a government license for their occupation. This is more than twice the percentage of workers who must belong to a union (12 percent.) Today 50 occupations are licensed in all states, and 800 are licensed in at least one state.

Several years ago, in my book MAKERS AND TAKERS: How Wealth and Progress are Made and How They are Taken Away or Prevented, I discussed this issue and gave several examples over the years of how occupational licensing increases costs but not consumer protection. Here are a few:

A federal trade commission report revealed that the incidence of fraud among TV repairmen in Louisiana, which has a state licensing requirement, was about the same as in states where repairmen were not licensed—and TV repairs cost more in Louisiana.

A U.S. Department of Labor report said state licensing boards were “riddled with faults...fraught with chaotic and inequitable rules, regulations and requirements and prone to restrictive and exclusionary practices as a result of pressures exerted by special interest groups”—who seek to obtain special privileges.

When the Civil Aeronautics Board came into existence in 1938, it immediately certified the nineteen existing airlines then operating across state lines—and would not certify a single new trunk carrier over the next 40 years!—despite the enormous growth of air traffic during this period.

            According to a Federal Trade Commission report, state licensing of 
            dentists added $700 million per year to the cost of dental care in the 
            United States.          

In my book I also included a quotation many years ago from Melvin D. Barger on how occupational licensing can keep qualified people out of occupations:

Under today's licensing requirements, Thomas Edison could not have been certified as an engineer, Abraham Lincoln would have been barred from practicing law, and Albert Einstein could not have been even a high school science teacher.