Consumers pay more than $200 billion per year in higher prices caused by occupational licensing regulations.
And what do they get in return? Not much.
Occupational licensing laws make it illegal to enter an occupation without the state’s seal of approval. They are ostensibly meant to protect the public from low-quality and unsafe services by incompetent workers. By enforcing minimum training standards, the argument goes, the government prevents quacks and charlatans from putting consumers at risk.
Occupational licensure is commonly associated with professions in medicine or law, but many, many Americans may not realize that over a thousand different occupations require a license in at least one state. They include massage therapists, cosmetologists, house painters, teacher assistants, security guards, pest control applicators, and many more. In all, about 30 percent of workers in the U.S. need government permission to do their job.
While licensing is typically justified by appealing to public safety, there is little evidence to support this view. If that were the case, the same types of occupations would be regulated in similar ways across different states. In reality, the stringency of occupational regulations varies considerably from state to state.
For example, the average HVAC contractor must complete 891 days of education and training. In Michigan, however, prospective HVAC contractors must complete nearly seven months more training than the national average—almost 3 years in total—before beginning work. By contrast, their counterparts in Indiana don’t need to earn a license at all, and so can get to work much sooner.
The same is true of dozens of other professions. Some states require significantly more training than the national average, while many others don’t require licensure at all.
Comparisons between licensed occupations are just as perplexing. For example, why do emergency medical technicians in Maine only need 120 hours of training, while in many states barbers need 1,500 hours of instruction? Surely performing CPR on an unconscious patient has more to do with public safety than wielding a pair of hair trimmers.
It’s clear that protecting the safety of consumers is not the primary motivation of most licensing laws. The real objective is to limit competition in licensed occupations in order to boost the profits of incumbents at the expense of consumers. While private individuals and consumer advocacy groups rarely urge governments to adopt occupational licensing regulations, private companies and professional associations often do. And, whenever independent reviews suggest that licensing on public safety grounds is not justified, you can count on licensed professionals to lobby intensely to protect their government-enforced monopoly.
A report by the Treasury Department and other federal agencies found that “the evidence on licensing’s effects on prices is unequivocal: many studies find that more restrictive licensing laws lead to higher prices for consumers.” In some cases, licensing inflates prices by as much as 10 to 15 percent. One study estimated that occupational licensure increases prices for American consumers by more than $200 billion every year, costing the average household about $1,600.
In short, when the government sets the standards for quality for an occupation, the standards are more likely to be dictated by political pressure than by sound risk assessment. Most licensing laws serve a few entrenched interests at the expense of the many. It’s time for policymakers to reform this broken system.