April 27, 2016

New data on occupational licensing confirms existence of rent-seeking incentives

By Caleb R. Trotter Attorney

The federal Bureau of Labor Statistics recently released new data that shows workers with an occupational license or certification tend to earn higher wages than those without a license or certification. That shouldn’t be all that surprising since one of the main, stated purposes of getting a license is for those workers to have greater qualifications and expertise than those without a license–so it makes sense that licensed workers earn more than unlicensed workers. What makes this data interesting and useful, though, is that it highlights why there’s been a steady increase in the number of professions licensed, and it helps explain why it is so difficult to have licensing requirements removed or lessened.

Some may assume the increase in professions requiring occupational licenses from about 5% in the 1950s to about 25% in 2015 to be the result of increased awareness of, or response to, public health and safety concerns. But as previous studies here, here, and here have shown, and the new data confirms, those concerns are often secondary, at best.

Typically, the way one earns more money is to either work more or to work more productively. In other words, if one is paid hourly, then working more hours necessarily results in greater pay. And regardless if one is paid hourly or on salary, work that produces increasingly better results and outcomes is often rewarded with pay raises, bonuses, and additional work. Still another way to increase pay is to limit the number of people who can compete with the existing members of a profession by requiring all of the practitioners to obtain an occupational license from the government.

Existing practitioners often claim that new licensing schemes are the best way to implement minimum standards and prevent unqualified people from practicing the profession, thus preventing harm to the reputation of the profession as a whole and preventing potential harm to the public. As a result, erecting a barrier to entry for the profession is necessary and beneficial, they claim. The new data, however, shows another powerful incentive for creating new licenses: higher pay. No wonder “we want to be regulated” is frequently said by members of the profession at legislative hearings discussing new licensure bills.

Furthermore, the past forty years in the United States have only seen eight instances of successful, lasting de-licensing of professions. Aside from not wanting the value of their license to suddenly become worthless, the new data also reveal why existing licensed practitioners oppose efforts to de-license themselves. Along with increased competition comes the inability to continue charging premium prices without the accompanying premium value to the public.

In any event, while many organized groups of professionals are likely sincere in their belief that licensing will protect the public from unqualified people, due to the monetary incentives–in addition to the other known harms of occupational licensing–licensing proponents should, at a minimum, be required to prove why the public cannot adequately be protected through less drastic means. Registration, private certifications, and existing market mechanisms like Yelp, Angie’s List, and internal rating systems through Uber, Lyft, and VRBO, provide ample alternatives to give consumers information about who they are hiring and paying for services.

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