Occupational Licensing Rules Benefit Industry Insiders, Hurt Consumers

Jesse Hathaway Research Fellow, Heartland Institute
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Passed into law with the stated intention of protecting consumers from low-quality service providers, occupational licensing laws in fact hurt consumers by insulating existing businesses from competition and preventing people from using their talents to earn a living in ways that might serve consumers better.

For example, in February the Colorado Division of Private Occupational Schools began cracking down on 82 yoga studios operating without the state’s permission. That crackdown came at the request of yoga instructor Lorna Candler, who just happened also to serve in a position in the bureau allowing her to regulate her employer’s competition.

In March, Oregon lawmakers proposed a bill to place music therapists under the regulatory thumb of government agencies, restricting who is permitted to call themselves a “music therapist” or use music to help people cope with emotional or psychological issues.

After four pages listing new qualifications and bureaucratic hoops for hopeful music therapists to jump through, the bill declares cracking down on unregulated musicians to be “necessary for the immediate preservation of the public peace, health and safety.”

“An emergency is declared to exist,” the bill’s text simply says, without further explanation of the nature of this plague of rogue musical therapists.

Occupational licensing rules such as those in Colorado and Oregon are often passed to protect members of the licensed occupation against competition from new entrants.

According to a study by Morris Kleiner, a professor at the University of Minnesota Center for Human Resources and Labor Studies, “It is well understood that occupational licensing can serve as a barrier to occupational entry resulting in reduced employment, monopoly rents for workers in the occupation, and higher prices for consumers.”

“Occupational regulation,” Kleiner wrote in a 2006 essay for the magazine Regulation, “has grown because it serves the interests of those in the occupation as well as government.” A 2011 Kleiner study found “23 percent of U.S. workers were required to obtain state licenses, up from just 5 percent in 1950.”

Occupational licensing laws and regulations don’t improve the quality of service for consumers, but they do increase the quantity of cash for industry insiders. In February 2015, Edward J. Timmons, associate professor of economics at Saint Francis University, searched for a connection between optician licensing and the price and perceived quality of eye care. Timmons found the annual incomes of vision professionals were “substantially higher” in states with licensing statutes, but he did not find evidence supporting a correlation between licensing and consumer confidence.

In fact, Timmons cites Federal Trade Commission research finding “the quality difference between licensed and unlicensed professionals was statistically insignificant.”

Timmons writes, “the interests of consumers are not always represented by regulatory intervention” in the studied markets.

Instead of writing rules to keep competition at bay and restrict consumers’ choices to a list of government-approved service providers, lawmakers should let people go to work and do the things they enjoy doing for a living. Promoting entrepreneurship and making it easier for people to work to help others gives consumers more options and more power over their own lives.

Jesse Hathaway (jhathaway@heartland.org) is a research fellow with The Heartland Institute.