Occupational Licensing and the Public Interest

Occupational Licensing and the Public Interest

Occupational licensing has been justifiable in the view of legislatures on the grounds that it protects the public interest; often, however, it is the producers of the good or service who present this argument to the state legislatures. This is hardly surprising, since the typical consumer is likely to suffer too small a wealth loss (in the form of higher prices) in the licensing of one more occupation, as has already been pointed out by others. The end result is the promotion of the interests of the producer group rather than those of the public. Though this is what we economists would expect to happen, the principal difficulty in making progress with our case has been in trying to convince legislatures that the occupations receiving licenses do use their power to promote their own wealth at the expense of the consumer. It is the purpose of this paper to present evidence on this point in order that the ground rules for discussing the problem with state legislators can be altered. It will first be necessary to present the theoretical apparatus with which I will inspect and evaluate the data. It should be noted at the outset that some of the ingredients of my model were mentioned in one very interesting earlier study of the purpose of licensing. In particular, Moore expressed the proposition that “the more demand is growing for the occupation, the greater the return from licensing.” Moore concluded that the evidence indicated the tendency to license was not correlated with its monetary return. I have formulated the hypothesis somewhat more precisely and have used appendix data from the same study utilized by Moore but which appendix data he neglected to analyze; my investigation tends to support the same basic hypothesis which his investigation failed to support.

Alex Maurizi

Journal of Political Economy

April 1974

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