by Jon Sanders
Research Editor and Senior Fellow, Regulatory Studies, John Locke Foundation
The last entry in this series discussed the question over whether an occupational license serves a legitimate public policy need or is instead an arbitrary regulation. That’s the issue raised in the third finding in the Right to Earn a Living Act, which also includes the consequence of putting an occupation under state licensing:
limiting entry and reducing competition.
Occupational licensing is the most extreme form of occupational regulation by the state. It’s the only one that blocks entry into a field of labor unless and until a person satisfies all the state’s requirements, which can be quite costly. It would be a big deal any time a decision to subject an occupation to licensing were made arbitrarily.
Someone who wishes to get a license to start work in a licensed field must first take on a slew of potential costs first. They would include some or all of the following:
It is well known that making something cost more results in fewer people availing themselves of it. In this case, what is happening is that the state has made providing labor in certain fields more costly. That constrains the supply of labor in those fields and makes licensed practitioners scarcer than they would otherwise be, more valuable, and therefore cost more to consumers.
Labor economist Morris Kleiner, the nation’s foremost expert on occupational licensing, explained:
The most generally held view on the economics of occupational licensing is that it restricts the supply of labor to the occupation and thereby drives up the price of labor as well as the services rendered.
As estimated by Kleiner and economic Alan Krueger, this price premium from reducing competition amounts to workers in licensed professions earning 15 percent higher wages than they otherwise would have.
There’s more. Occupations under licensing in some states grow 20 percent slower than they do in states where they’re not subject to licensing. And as discussed last week, there are over 1,100 different occupations that face licensing in one or more states. Meanwhile, nearly 30 percent of the workforce nationwide is required to hold a license in order to work.
Putting it all together, Kleiner estimated that occupational licensing has left us with 2.85 million fewer jobs, the consequence being an annual cost to consumers of $203 billion (that’s annually, not a one-time cost).
The next entry in this series will examine who are more likely to get priced out and left behind because of arbitrary occupational licensing.
Posts examining the Right to Earn a Living Act:
Part 1: A fundamental civil right
Part 2: A well-known path up from poverty
Part 3: Legitimate vs. arbitrary regulation
Part 4: Fewer jobs, higher prices
Part 5: Greater burden for poor workers and consumers
Part 6: Three main objectives
Part 7: Defining the terms
Part 8: A very high bar
Part 9: Defending the decision to license
Part 10: Challenging the decision to license
Epilogue: Securing rights on the local level, too