The Progressive Case Against Occupational Licensing

Regulation is a common area of discord between libertarians and progressives, largely because they fear countervailing bogeymen. Libertarians see the corrupt hand of the government interfering in private affairs, whereas progressives see rapacious corporations run amok. The irony is that both phenomena are two sides of the same coin. Government corruption and unethical business practices are not mutually exclusive, as we know from experience. But demonizing one requires sanitizing the other, and so we are locked in the same framework.

Occupational licensing may be a potent area for progressive and libertarian cooperation, however, because the bogeyman satisfies the requirements of both sides. Licensing boards protect narrow business interests. They actively engage in government rent-seeking. They harm the public by inflating prices and restricting opportunity. It would meet both libertarian and progressive goals to restrict their power and influence.

Progressives have traditionally supported occupational licensing as a way to protect the safety of consumers and ensure a basic level of service quality to everyone. In popular culture, the most well-known occupational boards are those that govern the original “professions,” medicine and law. Certainly, we should expect a certain level of expertise and skill from the people to whom we entrust our lives and divorces. But today occupational boards regulate hundreds of jobs, from optometrists to hair stylists and florists. In 1950, five percent of American workers were required to have a state government license to perform their jobs legally; in 2013, that figure stood at 29 percent. Most occupational boards are dominated by members of the profession being regulated, giving incumbent economic actors the incentive to protect their advantage rather than consumers’ interests.

Far from offering consumers value, licensing boards inflate the price of services by restricting the growth of the profession. Once incumbent businesses (usually the proponents and beneficiaries of licensure) are firmly ensconced on the board, they increase the barriers to entering the profession in order to diminish new competition. The result for buyers is higher prices and a lower quality of service. A 2013 study found that licensing was associated with an 18 percent wage premium over unlicensed professions, and a significant part of the higher wages (and prices) commanded by licensed professionals comes from keeping supply low relative to demand.

Those hurt the most by licensing board monopolies are lower-income workers, who have to pay higher prices for services and struggle to break into fields with onerous fees and training requirements. According to a 2012 Institute for Justice study of 102 low- and moderate-income occupations, the average worker must “spend nine months in education or training, pass one exam and pay more than $200 in fees.” The study found that the most burdensome requirements were for interior designers, preschool teachers and athletic trainers. The correlation between these jobs and the stringency by which they are regulated is clearly not their importance to the public interest.

Photo credit: Adam Peck for New Republic, source Goldwater Institute.

Photo credit: Adam Peck for New Republic, source Goldwater Institute.

Far from ensuring service quality, licensing boards rarely police incumbents, preferring to go after economic competitors who threaten their business or those who refuse to play by their rules. The medical professions offer a few examples of this in action. In 2013, USA Today reported that thousands of doctors continue to practice despite findings of serious misconduct by state medical boards. Many doctors who are disciplined or banned by hospitals maintain clean records, and hundreds of doctors cited for substandard care and negligence are still working. Even doctors sued for malpractice keep treating patients:

“Among the nearly 100,000 doctors who made payments to resolve malpractice claims from 2001 to 2011, roughly 800 were responsible for 10% of all the dollars paid and their total payouts averaged about $5.2 million per doctor. Yet fewer than one in five faced any sort of licensure action by their state medical boards.”

And yet, according to a recent story in The Washington Post, the Mississippi State Board of Medical Licensure found the time to harass a doctor providing medical care to poor residents in isolated towns because he works out of his car rather than an office – despite pleas from his patients to allow him to keep his license. Last year, the Supreme Court heard a case in which the North Carolina Board of Dental Examiners sought to prevent commercial teeth whitening services from operating in the state. The board has eight members, and six of them must be practicing dentists elected by other dentists.

Given that licensing boards don’t protect consumers or ensure quality of service, its safe to say other factors are involved in their continued growth in the labor market. Unsurprisingly, those factors are money and government influence. Incumbent actors press for new regulations to “professionalize” the field and keep out the competition. They use their self-regulating authority to protect their advantage and keep prices high. They use their profits to influence lawmakers, or make the laws themselves. And the result is a raw deal for consumers and those trying to climb the ladder. According to TechCrunch, “Economists estimate that roughly 2.85 million jobs are non-existent due to occupational licensing requirements. The lack of available service providers raises costs for everyone, causing an estimated $205 billion in lost economic activity.”

Progressives and libertarians might differ on the necessity of licensing for some occupations, but surely both can agree that commonsense reforms are needed to ensure that regulations serve the public good rather than private gain. Surely we can distinguish between rules meant to create unnecessary burdens, and those necessary to protect consumers. And surely we can find a better way to meet these goals than quasi-public boards combining the worst impulses of the public and private sectors.