All Commentary
Sunday, July 1, 2007

Licensing Occupations: Ensuring Quality or Restricting Competition?

Occupational Licensing Does Not Protect Consumers or Improve Services

W. E. Upjohn Institute for Employment Research • 2006 • 181 pages • $40.00 hardcover; $18.00 paperback

Cases of ridiculous occupational licensing regulations are a dime a dozen. One that I came across recently is illustrative. Due to the fact that the diet of horses today contains much less abrasive material than in the past, their teeth need to be filed down periodically. Without that service, called “floating,” it becomes painful for a horse to chew or hold a bit.

A veteran horse teeth “floater” in Minnesota has run into trouble with the State Board of Veterinarians, which informed him that he was doing work that fell within the legal purview of veterinarians and because he was not a licensed vet, he would have to stop. No customer of his had complained about his work, so what was the problem? The problem was that he charged only half as much as vets did for the same work. That was intolerable. The licensed vets of Minnesota saw an easy way to eliminate competition from this outsider by enforcing the law.

Is there any justification for occupational licensing statutes? The many professional organizations that promote such laws invariably claim that there are laudable public purposes behind them—primarily that they are needed to protect the public against incompetent practitioners. “All we care about is guaranteeing that those in the field have at least achieved the basic level of competence so consumers won’t be cheated,” they claim.

Should we accept that claim? Morris Kleiner, an economist who teaches at the University of Minnesota and is a visiting scholar in the economics department of the Minneapolis Federal Reserve Bank, takes a careful look at the issue in Licensing Occupations and comes to the conclusion that occupational licensing statutes do little or nothing to protect consumers, but do tend to raise the price of services. Kleiner writes, “[F]rom the evidence I was able to gather, there is no overall quality benefit (measured in a number of different ways) of licensing to consumers. Consequently, the cost of regulation to society is higher prices or longer waits for a service. An additional societal cost is the reallocation of income from consumers to practitioners of the licensed occupation as well as lost output.”

So once again we find that coercive interference with market processes creates benefits for a few that are outweighed by costs to the many.

Kleiner’s analysis involves comparing states that license certain occupations with others that don’t. For example, while most states require that practical and vocational nurses be licensed, several do not. If licensing actually raises practitioner quality, Kleiner reasons, then insurance rates for those nurses in nonlicensing states should be higher than in states with licensing to reflect their supposedly higher likelihood of making mistakes. Too bad for licensing advocates—Kleiner finds that insurance rates are no higher in states that don’t require licensure.

Kleiner also makes excellent analytical use of data from the neighboring states of Minnesota and Wisconsin. Wisconsin requires licensing for many occupations that Minnesota doesn’t. Many of the licensed occupations in Wisconsin are only subject to certification in Minnesota. From the data on complaints filed by consumers, Kleiner concludes, “At a minimum, licensed occupations showed no greater ability to reduce constituents’ complaints to licensing boards about the service provided compared to complaints filed in a regime where the same occupations were certified. . . .”

That is an important finding. Free-market advocates have long maintained that private certification—which allows practitioners to demonstrate competency by passing an examination, but does not prohibit noncertified individuals from offering their services (as long as they don’t falsely claim to be certified)—is preferable to licensing because it allows consumers to choose. If they think a certified practitioner best suits their needs, that option is available; if they don’t want to pay more for a certified professional or believe that a noncertified practitioner can do the work competently, they can make that choice. Certification is consistent with liberty whereas licensing statutes are authoritarian attacks on liberty.

Kleiner makes it clear that the impetus behind occupational licensing is overwhelmingly the desire by professionals to control entry into their field, not a dispassionate analysis by public officials that citizens would be best served if they were forced to choose between doing business with a licensed, state-approved practitioner and either getting no service at all or attempting a do-it-yourself job. Licensing Occupations pounds another nail into the coffin of the belief that labor-market regulations are wise policy choices.

Oh yes—the Minnesota “floating” case. It is currently before a state court, and the Institute for Justice attorney who represented the defendant says that the Veterinary Board is pulling out all the stops to show that the licensing statute is necessary and reasonable. I wish  someone would send the judge a copy of Professor Kleiner’s book.

  • George Leef is the former book review editor of The Freeman. He is director of research at the John W. Pope Center for Higher Education Policy.