Occupational licensing laws are another example of regulations which kill economic growth
Over the last couple of days, I’ve written about how regulations stifle the economy, offering the brewing industry in Minnesota as an example. Another type of regulation is occupational licensing.
An occupational license is a state-issued credential that a worker must possess to legally work for pay. They make it costly to seek employment in licensed occupations and are thought to reduce employment in those occupations.
A recent paper by economists Peter Q. Blair and Bobby W. Chung for the National Bureau of Economic Research titled ‘How Much of Barrier to Entry is Occupational Licensing?‘ finds that to be the case. Their results suggest that occupational licensing reduces labor supply by an average of 17–27%. Moreover, they find that the negative labor-supply effects of occupational licensing are particularly large for white workers and comparatively small for black workers.
Some of these licensing requirement might seem sensible, such as those for physicians, dentists, teachers, and electricians. But in the past six decades, instances of occupational licensing in the United States have increased from a coverage of around 5% of the U.S. labor force to almost 25% today. The rationale for licensing some of the occupations covered is much less obvious – auctioneers, florists, locksmiths, ballroom dance instructors, hair braiders, manicurists, interior designers, and upholsterers, for example.
Again, why do we have these regulations? In what way was the ‘public interest’ being served by the state of Louisiana preventing Sandy Meadows from earning a living as a florist simply because she didn’t have a license?
Again, cui bono? By restricting competition, occupational licensing laws keep wages in those occupations artificially high. So, those working in those occupations have an incentive to support licensing. These laws are not in the interests of the public or the consumer, but of the producers.
Minnesota ranks 11th nationally for increases in occupational licensing requirements. What would really be in the ‘public interest’, is to get us down that ranking.
John Phelan is an economist at the Center of the American Experiment.