How 21st Century Guilds Fight Licensing Reform

How 21st Century Guilds Fight Licensing Reform

“Rent-seeking thrives in the dark, obscure corners of democratic life” wrote Brink Lindsey, co-author of The Captured Economy in rent check’s inaugural blog post.

This goes back to Mancur Olson’s argument related to concentrated benefits and diffuse costs: rent-seekers have a lot to gain from restricting competition or other forms of preferable regulatory treatment, but the rest of us have better ways to spend our time. This built-in organizing advantage for rent-seekers is then amplified when the subject is arcane and the decision-making venue is obscure and inaccessible. Stealth is the rent-seeker’s best friend.

But when the spotlight is shined on these interest groups, they have to marshall arguments in their defense. Earlier this month the American Institute of Certified Public Accountants (AICPA) came out against pushes to delicense their profession emerging across the state:

From 2015 to 2018, 34 states introduced legislation related to occupational licensing reform. On both coasts and in every region, state policymakers are seriously considering these reforms. For example, New Mexico Governor Susana Martinez signed an executive order that would allow people to perform services normally restricted to licensed professions, including CPA services, if they had the customer sign a waiver.

This national conversation around licensure threatens our mobility laws and could eliminate substantial equivalency. If this legislation succeeds, requirements for licensure will vary wildly across states, creating costly compliance burdens for CPAs.

Aside from the normal scaremongering about unlicensed professionals, there’s no actual evidence marshalled to defense licensure specifically. The closest they come is to argue that the requirements for licensure will “vary wildly.”

Now, it is true that the requirements for CPA licensure are similar across states (namely the “150 hour rule”). But consistency is only a virtue if something is consistently good. What does the literature have to say about the 150 hour rule?

I examine the effects of mandatory occupational licensure on the quality of Certified Public Accountants (CPAs) using the staggered state-level adoption of the 150-hour Rule (the Rule). Although the Rule reduces the number of entrants into the profession, an analysis of labor market outcomes shows that accountants subject to the Rule are more likely to be employed at a Big 4 public accounting firm and specialize in taxation. However, accountants subject to the Rule have the same likelihood of promotion, the same duration until promotion, and exit public accounting at faster rates than their non-Rule counterparts. Moreover, Rule accountants earn a wage premium relative to non-Rule accountants. These findings suggest that restrictive licensing laws reduced the supply of new CPAs and increased rents to the profession without drastically improving quality in the labor market. [Emphasis added]

One blogger described AICPA’s argument as “full doobie-smoking, conspiracy theorist wackjob.” While this does a disservice to stoners (at least they can sober up), the conspiracy theorist label fits. AICPA’s defense of licensure points to shadowy nonspecific outside groups and is impervious to all evidence to the contrary.

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By |2018-11-27T13:04:58+00:00November 27th, 2018|Blog, Occupational Licensing|