A recent post on the New York Times Freakonomics blog discussed the issue of occupational licensing. As author Daniel Hamermesh correctly notes, licensing benefits existing practitioners at the expense of potential competitors and, ultimately, consumers.
A headline in our local paper screams: “Barbers, Cosmetologists in Turf War Over Shaving.” The question is where sideburns end and beards begin.
In Texas, only barbers are licensed to trim beards, and they are unhappy that cosmetologists are cutting into their market.
This fight illustrates the effects of occupational licensing—legal restrictions on workers’ ability to enter certain markets.
Barbers have benefited over the years from the exclusion of cosmetologists in what was essentially a restriction on supply. Along with the high entry costs (nearly a year of required training), this has raised the equilibrium wage of barbers—and the equilibrium price of a haircut. Licensing of medical doctors, where the consumer lacks information on quality, might be sensible. But barbers and cosmetologists?
As one party to this controversy noted, “Most of the rules are so archaic and pathetic. They’re prehistoric.” True—and it’s the consumer who suffers.
The above example illustrates the arbitrary—and sometimes downright ridiculous—nature of many licensing laws. Those that offer bad beard trims, whether they be barbers or cosmetologists, are not likely to stay in business long. Consumers do not need the state to step in and regulate the scourge of bad trims. For that matter, heaven forbid getting rid of licenses for barbers and cosmetologists altogether. Why, people all across the state would be walking around with bad hair cuts and bad nail jobs!
Licensing laws are entirely about protecting a group of businesses from competition, not about "protecting the public." This is why new or stricter licensing regulations are virtually always proposed by the group to be licensed—not because of any public outcry—and why those seeking the regulations are typically "grandfathered" in so that they do not have to meet the tougher standards they impose on their future competitors. Make no mistake, occupational licensing laws are borne of special interests, not the public interest.
As a result of the licensing, competition in the licensed occupation is reduced, allowing licensed businesses to charge consumers more than they would in a free market. Furthermore, mandatory licensing may have other unintended consequences, such as giving consumers a false sense of security about those with whom they do business and leading to the creation of black markets for goods and services.
Voluntary certification is a much better model, as it allows businesses to signal their competence and quality by satisfying the requirements of an independent certification organization while offering consumers the freedom and flexibility to choose certified or uncertified practitioners, depending on their budgetary constraints, risk tolerances, or other preferences. Where there are instances of fraud or negligence, which will occur with or without mandatory licensing laws, the court system can serve as a final check to ensure that consumers are protected or awarded restitution for poor service.
» My previous policy study on occupational licensing, Occupational Licensing: Ranking the States and Exploring Alternatives, which includes a ranking of the 50 states by how many jobs they require licenses for.
» My column for the Los Angeles Business Journal on occupational licensing and how California tops the list in terms of the most-licensed states in the nation.
» Show-Me Institute brief on occupational licensing.