Occupational Licensing: Ranking the States and Exploring Alternatives

Occupational Licensing: Ranking the States and Exploring Alternatives

Numerous studies have revealed little, if any, improvement in service quality from compulsory licensing. Oftentimes, licensing laws actually reduce service quality and public safety. There are a number of reasons why product or service quality and health and safety may actually be diminished by occupational licensing…The real motivation behind most occupational licensing regulations is one of special interests, not the public interest. By banding together and convincing governments to impose new or stricter licensing laws, existing practitioners (who typically are exempted from the new laws through grandfather clauses) can raise the cost of doing business for potential competitors. These barriers to entry reduce competition, allowing the existing practitioners to keep prices and profits higher than they otherwise would be in a truly free market. Moreover, since they have less competition, licensed businesses have less incentive to innovate or invest in research and development to stay ahead of their rivals…This imposes a great cost on the economy. By restricting competition, licensing decreases the rate of job growth by an average of 20 percent. The total cost of licensing regulations is estimated at between $34.8 billion and $41.7 billion per year.

Adam B. Summers

Reason Foundation

August 1, 2007

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