People have probably heard of the recent spat in New Jersey, in which auto dealers conspired with authorities to use the force of regulation to push the innovative electric-car company Tesla Motors out of the market. Finally, many Americans and even some liberal pundits have woken up to the realization that it’s not enough to merely provide a good product or a useful service at a reasonable price to make it in business these days — it takes superhuman tolerance for government regulation.
While the treatment of Tesla does nicely demonstrate naked power of special-interest politics, popular discussion of this issue overlooks how anti-competitive cronyism hurts the most vulnerable Americans each and every day. Tesla is a popular and successful company that can afford to fight cronyism – at least when it cuts into its bottom line. Many low-income Americans, on the other hand, face similar anti-competitive licensing barriers for much of their lives without the benefit of a public-relations office and deep pockets to fight for justice.
“Occupational licensing” is the practice of requiring government approval before legally allowing individuals to earn a living in a particular profession. Individuals often must pay high fees, undergo many days in training or experience, or earn arbitrary certifications before receiving the privilege from their local or state governments of being allowed to work. These schemes are pervasive and costly. Worse, they enrich entrenched interests at the expense of low- and middle-income Americans.
Occupational licensing has grown significantly since the 1950s, when roughly one out of every 20 workers were required to obtain a government license. As George Mason University’s Donald Boudreaux explained in a piece for the Pittsburgh Tribune Review a few days ago, licensing requirements were typically justified on the grounds of consumer protection and public safety – many of the first license requirements targeted high-risk, and often high-income, professions such as surgeons and doctors. Even this justification is suspect, but at least these early schemes were relatively less regressive.
Today, the poor overwhelmingly bear the brunt of these burdens. Economists Morris Kleiner and Alan Krueger estimate that an astounding one out of every three U.S. workers are currently saddled by ridiculous occupational-licensing requirements. Many of these occupations – like working as a hairdresser, transit driver, or skilled technician – traditionally provided low-income Americans with a ladder to self-sufficiency and upward mobility. By making it more expensive for low-income Americans to reach the first rung, we make their climb out of poverty that much more difficult.
The Institute for Justice has done a wonderful study on this issue, “License to Work: A National Study of Burdens from Occupational Licensing,” which produced the following chart. “License to Work” is the first holistic look at the burdens and breadth of licensing laws targeting 102 low- to moderate-income occupations in all 50 states and the District of Columbia. As you can see, there isn’t much coherence in which occupations require a license, how long it takes to get one, and how much it costs. A year and a half of experience is necessary to shave beards?
This chart doesn’t measure the opportunity cost of pursuing the courses for these licenses rather than working to make money — which increases the financial cost substantially.
Here’s another chart showing which states are the biggest offenders. Who do you think benefits from these laws? Rarely the consumers, who often end up being charged a higher price for a service that requires licensing. The true beneficiaries of the laws are the people already working in the the licensed industry, since they allow them to fence off competition from new entrants, with the government-sustained monopoly resulting in higher wages for the licensed workers.
It is easy to see the cronyism lurking beneath New Jersey’s decision to conveniently change state regulations to suit special-interest complaints. It is much less easy to notice the considerable barriers that low-income Americans battle every day to simply provide a life for their families. The daily struggles of an unfairly licensed milk sampler are simply not as sexy as the high-profile battle in New Jersey, but I’m more worried about the silent regulatory plights facing the many would-be security guards and make-up artists that fail to make the national news than I am the fate of Elon Musk’s latest venture.
Pundits left and right who are rightly incensed about the Tesla incident should lend their passions against government protectionism to the ongoing crusade against occupational licensing. Let the people work already!