Schansberg: Government Licensing

February 6, 2018

by Eric Schansberg, Ph.D.

Maybe you’ve heard about the recent firestorm in Oregon. People there are now being allowed to pump their own gas in the state’s less-populous counties. Some Oregonians are worried about their ability to do it safely or they don’t want the smell of gasoline on their hands.

Of course, markets will continue to provide full-service gasoline stations if enough Oregonians want to continue paying for the service. But industry interest groups and a handful of concerned citizens are trying to stop the deregulation. They’re supporting an effort to have Oregon’s government re-regulate an activity that is legal in 48 other states. (New Jersey has been the only other exception.)

Requirements to have professionals pumping gas is an example of “mandatory licensing” — where you are mandated by the government to have a license to perform a service. Often, market participants will pursue certifications, diplomas and credentials to signal their value in the marketplace. But “mandatory” takes it to another level — where the government insists that legal participation in those markets must pass muster with government regulators.

The Institute for Justice (IJ) has just released the second edition of its publication on this topic, “License to Work: A National Study of Burdens from Occupational Licensing.” (Full disclosure: Kyle Sweetland, one of the co-authors, is a former student of mine at Indiana University Southeast.) In the book, the authors note that 5 percent of workers required permission from the government to work in a field in the 1950s. Today, it’s about 25 percent.

The authors document the regulatory burden for 102 “lower-income occupations” in each state. The average cost is $267, one exam and nearly a year of education and experience. Fields in the cosmetology trades are the subject of consistent and large-scale regulations. But examples abound, ranging from interior design to pest control, from preschool teachers to massage therapists, from painters to auctioneers.

Such regulations are particularly unjust for members of the military who have the relevant training from the federal government — but often don’t pass muster with state accrediting bodies — to work in those fields legally.

As the IJ authors note, the regulations are not consistent by state. This implies that workers and consumers in non-regulated states are able to work things out well enough, without the government’s help. And often the regulations don’t seem to make much sense: On average, cosmetologists require more than a year of training, but emergency medical technicians (EMT’s) require about a month.

Indiana is one of the least-regulated states, regulating only 37 of the 102 occupations. (The average is 54.) Here, the most regulated occupations are midwife, preschool teacher and sign-language interpreter. Midwives are required to have three years of education and to perform 80 deliveries — the most stringent requirements in the 41 states where it’s legal. (Of neighboring states, midwives are prohibited Kentucky and Illinois.) Preschool teachers need six years of education and three exams. Interpreters must be at least 18 years old and have four years of training.

Compared with other states, Indiana is particularly stringent on truck and transit-bus drivers, ranking fourth highest. They are required to have a year of experience and to pass four or five exams. Indiana also has relatively high barriers for school-bus drivers (12th highest), skin care specialists (12th) and manicurists (15th).

In general terms, the effects of mandatory licensing are easy to imagine and predict: higher barriers to entry lead to fewer service providers and less competition; workers have less access to relatively easy-to-enter occupations; and consumers will face higher prices and a mixed bag in terms of quality (fewer providers but hopefully more qualified).

Until the last few years, this was mostly an issue of concern for Libertarians and labor economists. Libertarians were bothered by the ethical and practical implications of the government restrictions. Labor economists pointed to the costs of policies that are usually sold solely on their benefits.

But in 2015, the Obama administration devoted considerable time and energy to the topic, releasing a report “documenting problems with licensing policy and calling for widespread reform.” President Donald Trump’s Labor Secretary, Alexander Acosta, also has exhorted the states to address this topic. The Bureau of Labor Statistics is now collecting data on these policies and the Federal Trade Commission has created an “Economic Liberty Task Force.”

This bipartisan effort makes sense since mandatory licensing is not a partisan issue. It’s more about those who are politically connected (the political 1 percent) versus the general public in their efforts to restrict competition from other producers and their desire to increase prices and profits.

Eric Schansberg, Ph.D., an adjunct scholar of the Indiana Policy Review Foundation, is professor of economics at Indiana University Southeast.



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