Occupational Licensing Doesn’t Improve the Quality of Services, It Makes It Worse

The proportion of U.S. workers who are required to hold a government license to do their job has grown substantially over the last seven decades. Today, nearly 3 in 10 workers are licensed, up from just 1 in 20 in 1950. Thousands of occupations require licensure in at least one state, ranging from barbers and log scalers to interior designers and athletic trainers.

Economists have pointed out that so much occupational licensing comes at a heavy cost — making it harder to enter some fields shrinks the supply of workers and drives up consumer prices. Licensing also makes it harder and more expensive for workers to find or change jobs, reducing economic mobility.

The standard defense of the United States’ extensive occupational licensing regime is that, by enforcing minimum competency standards, government agencies protect consumers from poorly-trained workers who would otherwise provide low-quality services. However, there is good reason to doubt whether licensing accomplishes the goal of protecting public safety.

In fact, several studies have shown that licensing regulations actually reduce the quality of services and jeopardize consumer safety. There are a few reasons for this.

First, when consumers aren’t able to hire a professional to provide a service — either because they can’t afford the higher prices caused by licensing requirements or because there are too few workers to satisfy demand — they are likely to turn to lower-quality substitutes. For instance, because of long wait times for an appointment or high prices, a toothache may be treated with an over-the-counter painkiller instead of a visit to a dentist. Or, a homeowner may try to do her own electrical work instead of calling a licensed electrician. As a result, the chance of a mild toothache developing into a serious infection, or the probability that a simple repair will end in electrocution or an electrical fire will increase.

Indeed, researchers have found that the availability of electricians is associated with rates of accidental deaths by electric shock.

Second, licensing regimes can inadvertently undermine public safety by stifling competition, thereby removing a powerful incentive for licensed workers to deliver high-quality services. Government licensing boards are supposed to provide oversight and monitor service quality, but in reality disciplinary action against negligent licensees is rare. The Federal Trade Commission compared the incidence of fraud in the television repair industry in jurisdictions that licensed repairmen and jurisdictions that did not. It found that fraud was more widespread (and prices substantially higher) in states that licensed repairmen.

Finally, the possible mismatch between licensing standards and actual job requirements means that licensure is no guarantee of high-quality services. Yet the state’s seal of approval tends to give consumers a false sense of security about the competence of licensed workers. As a result, people may be less careful when selecting those with whom they do business and less likely to investigate for themselves whether a particular worker’s skill level is acceptable.

Though the assumption that occupational licensing laws boost service quality and safeguard consumer safety is rarely questioned, policymakers and consumers should confront the fact that licensing’s central justification is seriously flawed.