Legal cartels

In the name of public safety and ensuring high quality, Minnesota’s licensing boards have created unchecked bureaucracies that limit competition.

Adam Smith, the 18th-century Scottish economist, warned against how trade-based cartels and monopolies can lead to “a conspiracy against the public, or in some contrivance to raise prices.” And even though a government’s action prohibiting such assemblies would infringe on liberties, Smith also warned it is not in the people’s best interest for governments to enable such collusions.

Smith was referring to a practice in which tradesmen (people who produced various goods and services) formed corporations that ruled particular trades. In towns where a trade was incorporated, individuals could either be employed by or be part of the so-called corporation. To be free of corporate authority, individuals were often required to go through apprenticeships under a qualified master.

Getting through apprenticeships, however, was no easy task. Corporations wrote by-laws that determined rules apprenticeships were supposed to follow. These rules went as far as limiting the number of students a master could have under

his apprenticeship and the number of years that a student was supposed to serve as an apprentice. By limiting the number of students and increasing education requirements, corporations managed to deter workers from entering into specific trades.

What often rendered corporation by-laws binding and enabled corporations to constrain competition was the fact that they possessed legitimate power backed by the state. State law both encouraged the development of corporations and also instilled legitimate power to police non-compliance with their rules.

Introduced by the parliament of Queen Elizabeth I in 1563, the “Statute of Apprenticeship” made it into public law, requiring a minimum apprenticeship of seven years for “any trade, craft, or mystery.”

With the government’s help, by-laws that corporations once used to govern solely over their respective trades had become common law ruling over all commerce. This power gave corporations exclusive privileges that individual workers did not have. In essence, corporations enjoyed the freedom to produce and trade without fear of competition from new entrants in the marketplace. In other words, corporations received the power to act as cartels. In essence, each class of tradesmen set up rules and regulations to limit competition in their respective trade essentially raising prices for their goods and services.

Licensing Boards

Licensing boards are currently perhaps one of the most powerful labor institutions in the United States and the state of Minnesota. Their power has expanded recent years due to the expansion of occupational licensing in the country. University of Minnesota Professor Morris Kleiner has described occupational licensing as a way to “protect the health and safety of consumers and to ensure a sufficiently high level of product or service quality. By making would-be practitioners undergo specific training, pass exams, and complete other requirements, according to this rationale, the public is better protected from fraudulent, disreputable, and unqualified service providers”

It is true that without licensing there is some risk of danger for certain professions, such as medical practitioners or electric installers. However, most licensed occupations are low-risk professions that can be mastered with training. So, why is there a broad reach of licensing boards in low-risk occupations?

When you think about it, today’s licensing boards are fairly similar to the corporations that drew the ire of Adam Smith. Modern licensing boards are typically empowered by the government to regulate a specific profession. This means their power and overreach are binding over all practitioners in the licensed field across the entire state.

This setup is a perfect recipe for successful anti-competitive behavior. It gives rise to organizations that use state police power to make up and enforce unreasonable rules, essentially enabling them to narrow down the market. Evidence suggests that licensing boards have become such self-serving entities that work like cartels instead of protecting consumer health and safety. It is not too hard ro imagine why; licensing creates a mechanism that not only requires the existence of but legally preserves the cartel-like power of the board in the labor market.

The Minnesota Board of Cosmetologist Examiners

Consider, for example, how the Minnesota Board of Cosmetologist Examiner has used its overreaching power to prey on makeup and hairstyling artists.

Generally, the Minnesota Board of Cosmetology requires anyone wishing to be a licensed cosmetologist to undertake 1,550 hours of training, pass exams, and pay about $139. Until it was changed in May 2020, this rule used to cover a broad range of professions, including freelance hairstyle and makeup artists.

By definition, most freelancers focus on doing either just makeup or hairstyling on site. However, under the old rule they still had to take a full cosmetology course and get licensed. According to the Minnesota School of Cosmetology, a full cosmetology course includes the following:

  • Cosmetology basics pre-clinic (245 hours of theory, 35 hours practical), which involves “instruction in applied science and skills in the art and science of beauty care.” As described by the school, this course teaches students “the fundamentals in scalp care, shampooing, conditioning, haircutting, hairdressing, hairstyling, properties of the hair and scalp, infection control, chemical texture services, manicuring and pedicuring, hair color, chemistry, and electricity.”
  • Cosmetology intermediate (165 hours theory, 605 hours practical), whereby students study the “anatomy and physiology, skin growth and structure, skin disease and disorders, nail structure and growth, nail disease and disorders, hairdressing, hair design, braiding and braid extensions, wigs and hair additions, hair coloring, facial makeup, hair removal, nail tips/wraps, acrylic nails, and light-cured gels.”
  • Cosmetology advanced (10 hours theory, 490 hours practical), whereby theory is devoted to teaching students about the salon and spa business, “enhancing skills in selling products and services, and career planning.” Clinic time is dedicated to “enhancing technical and customer service skills and completing state and school required quotas.”

A board-approved cosmetology program costs at least $20,000. However, most of the courses covered in cosmetology are irrelevant to someone who merely wants to practice makeup on site. Not only is pursuing cosmetology a waste of time for freelancers, but it is also very costly. It is hard to imagine any hind of harm makeup artists would bring on their consumers if they did not undergo this kind of training, yet licensing boards are well within their rights to enforce such rules.

Unfortunately, this is not yet the pinnacle of overreach with the Board of Cosmetology. After judging that a cosmetology license was not enough for someone to practice makeup and hairstyling, the board made some arbitrary changes to how certain rules were to be interpreted.

In December 2018, the board introduced a regulation that banned freelancers from operating at “special events” with just a cosmetology license and instead required that anyone who wanted to do makeup at weddings or other special events should undergo more training to earn a salon manager license. In addition, freelancers would also need to get a special event permit. The board sent cease and desist letters to freelancers, threatening fines and/or criminal penalties to anyone who failed to comply.

To be a salon manager, someone must undergo 4,250 hours of training and pass four exams. For most freelancers, who had already invested thousands of dollars in cosmetology school as well as years building their client base, the rule change meant they only had two choices: (1) cease operations for good, or (2) invest another 2,700 hours of salon work and take more exams.

There are a couple of facts that make the board’s decision unwarranted. First, makeup artists do not use very complicated tools, and they certainly do not need hours of training to master hygiene practices, such as cleaning tools and washing hands. Second, working in a salon does not always provide freelancers the opportunity
or the training to work on their area of interest, beautifying clients. To earn salon manager training experience, some workers have been forced to venture into unrelated activities like cutting hair in order to fulfill their licensing requirements.

What is even harder to understand is how arbitrary this law is regarding “special events.” For example, a bride can have a freelance makeup artist for her bridal photoshoot—no harm done there. However, for her actual wedding day, she would have to hire someone licensed as a salon manager to do her makeup. In fact, makeup artists are free to do makeup for photoshoots, television or film production or plays without needing to follow these extra rules.

This is definitely not a matter of safety or quality. As it happens, no evidence exists indicating that any harm necessitated this rule change. And while this law has regrettably been around for a while, the board (made up almost entirely of licensed and established practitioners in cosmetology) chose to interpret it differently just when the wedding industry was booming.

This is a rule that shouldn’t have existed in the first place. The board’s decision to enforce this law was undeniably meant to accomplish one thing—undercut freelancers in a competitive, flourishing market. Fortunately, this law was reversed, and Minnesota statute now exempts hair stylers and makeup artists from all types of licensing and only requires four hours of sanitation training.

Minnesota Occupational Licensing is Brimming with Irrationalities

Consider the following.

  1. To be a certified Emergency Medical Technician in Minnesota, someone only needs 142 hours of skills and training. However, to be a barber in Minnesota, the state requires 700 days of training. The national average requirement is 416 days.
  2. To be a fire alarm installer and a security alarm installer in Minnesota, three years of training is required, but nationally, the average required training is 486 days and 535 days, respectively.
  3. Horse trainers in Minnesota require two years of training, but the national average required training is three months.
  4. Tree trimmers (only licensed in Minneapolis, not Minnesota) are required to employ or be “qualified arborists.” To be a qualified arborist requires certification by the International Society of Arboriculture (a certification that takes three years to complete, including an exam that covers only a tiny portion on tree trimming) or a bachelor’s degree in arboretum. In contrast, the other four states that license tree trimming only require fees and an exam or two.
  5. To practice horse-teeth floating (the process of filing down a horse’s teeth for more efficient chewing), a Minnesotan must either be a licensed veterinarian or follow a lengthy process that costs tens of thousands of dollars and requires apprenticeships or memberships in private certification programs.

If licensing rules were about safety and quality, we would see uniformity in requirements, flexibility in how applicants fulfill training requirements, and a certain level of reasonableness to rules depending on the level of risk each occupation poses. But that is hardly what characterizes licensing rules. Licensing boards in their respective professions have taken it upon themselves to push for rules that do not make sense for quality or health reasons but are also costly and timely to comply with and arbitrarily applied. As Adam Smith warned, government-sanctioned collusions, like licensing boards, have an all binding and overreaching power that make them more likely to succeed in amassing power. This, in a nutshell, explains why licensing boards are not only able to expand their overreach but are always looking to do so. State laws necessitate they exist and help them hold and preserve cartel-like power in the market.