The Not-So-Uneasy Case Against Occupational Licensing: A Response

The Not-So-Uneasy Case Against Occupational Licensing: A Response

A few weeks ago, a twopart blog post from Frank Pasquale and Sandeep Vaheesan writing for the Law and Political Economy Blog makes the case for occupational licensing by tying it into broader disputes about the relationship between labor and capital.

There are a few needless jabs against neoliberals and conservatives, but it’s this line that stuck in the craw of many:

[T]he anti-licensing juggernaut makes sweeping claims that cannot be supported on the basis of extant empirical evidence. Nor are they theoretically compelling. Even if occupational licensing should promote only consumer interests, it is far from clear that existing licensing rules are somehow “excessive.”

It’s easy to dismiss “sweeping” claims, but our reference library contains a wealth of information on the negative effects of licensing.

Nevertheless, there’s no reason to doubt the sincerity or integrity of the authors. To borrow from RFK, we opponents of licensing shouldn’t get mad. Let’s get even with the academic research Pasquale and Vaheesan seem to be unaware of.

There are a few specific points I’d like to address.

First, a little bit of intellectual history. Pasquale and Vaheesan argue:

What’s particularly strange is that the high cost of specialist physicians is not usually in the sights of licensing critics. Rather, they tend to focus on lower-paid workers, such as hairdressers.

Now, it is true that a great deal of activism is focused on lower-skilled professions, such as hair braiders. But from Milton Friedman in Capitalism and Freedom fifty years ago to Lindsey and Teles in The Captured Economy just one year ago, many have criticized licensing’s tendency to increase the wealth of the already-rich and powerful in these professions.

Politically speaking, the AMA or the ABA are two tough opponents, which is why many activists choose these smaller fish.

Next is the relationship between the decline of unionism and the relationship between labor and capital. Labor unions are outside the scope of the Captured Economy project, but it’s an interesting point nonetheless:

As labor lost bargaining power relative to capital, one of the few ways to achieve some stability in supply was to assert a state interest in limiting entry to fields to the qualified. Raising wages and stabilizing employment are usually a plus from a macroeconomic perspective. It’s only the blinkered microeconomics of economism that obscures the need for some countervailing power against the rising dominance of capital.

Since the 1970s, institutional changes, such as the decline in unionization and increased employer-side concentration in labor markets, have tilted the balance of power decisively in favor of employers and against workers. In this landscape, barriers to labor market entry can give workers some degree of bargaining power that they would otherwise lack.

The problem with this argument is that licensing refers to the ability to practice a profession, and while many licensed professionals work for large firms, licensing also applies to sole practitioners, ranging from a mom-and-pop locksmith or hair braider to doctors and lawyers with their own practices.

Third is the familiar argument in favor of consumer protection:

Licensing has an important role to play in protecting consumers from provision of unsafe or ineffective services. For example, medical treatment and legal representation are often credence goods, whose quality cannot be fully assessed by a layman. In other fields, even if the quality of work can be readily assessed, the risk of a terrible outcome (such as an untrained plumber accidentally deluging an entire apartment building) requires some state intervention to promote acceptable quality of service.

Opponents of licensing need not be opposed to consumer protection. Indeed, to my knowledge, there is no regulation issued from a licensing board that cannot be implemented by a more traditional regulatory body.

Additionally, there is evidence that in some instances licensing is a net harm to consumer protection, particularly in cases where onerous licensing requirements create a disincentive for high-quality practitioners to enter the profession (called “negative selection”). Further, consumers can forego purchasing services that they need (such as medical, dental, or child care) or try to perform the services themselves (one study found that licensing electricians increases electrocutions as consumers try to make home repairs themselves.)

The final argument I’d like to address is more philosophical than economic:

But is it really so much better for the economy if there are, say, 100 hairdressers in a town making $10,000 a year, rather than 50 making $20,000? There is a reason licensing has begun to fill the vacuum left by right-to-work laws and other big business-led attacks on unions…

As labor lost bargaining power relative to capital, one of the few ways to achieve some stability in supply was to assert a state interest in limiting entry to fields to the qualified. Raising wages and stabilizing employment are usually a plus from a macroeconomic perspective. It’s only the blinkered microeconomics of economism that obscures the need for some countervailing power against the rising dominance of capital.

When it comes to the greater pay for fewer vs. less pay for more, the latter is preferable, for two main reasons. First, while one need not be a free-market fundamentalist to oppose licensing, there’s something to be said for economic liberty in the abstract. In a liberal society, there should be some baseline level of deference to the outcomes of voluntary exchange.

This isn’t to say there’s nothing the government should do with respect to the least well-off (we’re firm believers in the free-market welfare state), but, all else being equal, we should respect outcomes based on choice.

But second, those who are locked out of their chosen profession (potentially finding themselves unemployed) are certainly less well-off than those who are employed and enjoy the wage premia that come from licensing. Opposition to licensing can be based on both Nozickian and Rawlsian thinking, on top of more familiar utilitarian “economism.”

Finally, lest we be accused of cherry-picking in our reference library, there are a number of studies that find positive (here and here) or mixed effects (here, here, and here) from occupational licensing. Admittedly, there aren’t too many, but if anything that’s a statement about the strength of the case against occupational licensing per se as a labor market regulation.

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By |2018-12-21T08:47:18+00:00December 21st, 2018|Blog, Occupational Licensing|