A straightforward model of supply and demand is developed to analyze the regulation of a “Competitive “ industry —cosmetology —with demand shifts representing an enhancement of “quality “ and supply shifts representing restricted entry. Reduced form models are established to estimate both price and quantity shifts, adjusted for the joint determination of cosmetological prices, quantities, and state regulations. Our results reveal a significant net decrease in quantity from the imposition of state occupational regulation in the cosmetology market. Rents to cosmetologists would be on the order of $1.7 billion per year with deadweight losses totaling an additional $111 million per annum under reasonable and conservative assumptions.
A. Frank Adams, John D. Jackson, and Robert B. Ekelund
Journal of Labor Research