Too much of a good thing.

I think we all can agree we need rigorous state regulation of  certain professions.  When the health, safety and vital welfare of the public are involved, there is a clear requirement that practioners be trained to do their work properly, have demonstrated they can do their work properly, and be monitored to ensure they do their work properly.  No one wants to see quack doctors, shyster lawyers, incompetent engineers or sloppy gas-fitters on the job.  

There is a continuum of occupational regulation however.  Common sense would suggest that work should only be regulated if necessary and only to the extent necessary to serve the public interest.   The range of options is shown below:

 

The recent trend has been towards licensing.  It seems to follow  a well worn path.  Some incident or series of mishaps occurs and the cause is traced to incompetent, negligent or wilful criminal behavior in a commercial transaction.  The public becomes alarmed and the cry goes up to "do something about this".  State politicians decide to "do something" which generally involves regulating the offender's occupation rather than diving into the nuts and bolts of specialized work.  In a sense, to fix the problem, they outsource it to those practicing the offending occupation and let them sort it out.  This is a good thing; I don't think we would want state politicians writing regulations on brain surgery.  

To minimize costs, the state largely turns regulation of occupations over to self-governing associations who set requirements, administer tests, license members and monitor compliance.  Self-regulation is set up to cost the state nothing - all expenses are borne by the association members.  Sometimes the state adds a surcharge to make regulation a net money maker.

Note that there is no push-back here.  Problem traced to some occupation comes up -> law gets passed empowering some occupational association -> occupational association hopefully takes care of the problem by regulating the profession.  The association has a vested interest in keeping out the bad apples to ensure the rest can make a living.

There are serious hidden costs to this system which the taxpayer does pay however.  Let's take a quick look at the symptoms of the problem:

• Back in the 1950's only 5% of Americans required licensing to practice their occupations; now 30% of workers require licensing.

Depending on the state, barbers, florists, auctioneers, court recorders, hair braiders, interior designers, landscapers, fortune tellers, cemetery plot salesmen, teaching assistants, bartenders, make-up artists, shampooers,... are all now regulated. 

• Licensing creates wage differentials, independent of skill sets.  These particularly discriminate against women, the poor and minority groups. 

In Nevada, the average occupational license for a lower-income occupation requires $704 in fees, more than two years of education and experience and two exams. These barriers to entry for aspiring workers restrict competition in licensed occupations, limiting economic opportunity and driving up costs for consumers. (Las Vegas Review Journal)

•  Licensing can seriously restrict worker mobility. 

 What’s more, licensing requirements limit the mobility of skilled workers into a state. Why move if you’re going to have to take hundreds of hours of classes to get the license necessary to ply your trade? If someone has been a florist in a state where there’s no requirement for a license to sell flowers, why should he or she consider moving to a state where it could take months before getting the documentation necessary to peddle petunias again?

• Licensing creates a barrier to entrepreneurship and throttles business formation.

• Licensing drives up the cost of services for both the regulated workers and ultimately the public at large. 

Kleiner and Krueger (2010 and 2013)show that after controlling for education, labor market experience, occupation, and other controls, licensing is associated with a 15 to 18 percent wage premium in the labor market. This estimate may partially reflect a premium for higher unmeasured human capital, but it is also consistent and likely in large part due to rents. 

The problem: collusion in restraint of trade

Adam Smith famously noted that:

 “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Licensing can be used as a rent-seeking manoeuver to fence off occupations, preventing outsiders from gaining entry and maximizing profits for members.   In our litigious, risk-averse society, it is easy for well organized trade groups to convince vote hungry politicians that the public interest is served by licensing their occupations.   In the cause of public health, safety and general welfare, state politicians cooperate with trade organizations to create near monopolies on certain lines of work.  

How bad is it in Nevada?

It's bad.  Nevada now has the highest rate of occupational licensing in the nation.  The Mercatus Center at George Mason University has some choice words on the subject:  

The government of Nevada has developed extensive licensing requirements. In 2013, the latest year for which data are available, the state licensed 30.7 percent of the workforce and certified another 5.4 percent. According to Nevada’s Legislative Council Bureau, the state licenses “more than 50 professions, occupations, and businesses.” This would appear to undercount the number of regulated professions, however. A 2017 study by the Institute for Justice (IJ) examined occupational licensure laws for 102 lower-income occupations and found that Nevada requires a license for 75 of them. Only three other states—Louisiana, Washington, and California—license more low-income professions. The state also licenses such rarely licensed professions as interior designer, sign language interpreter, and animal trainer.

 Patterns in occupational licensing requirements contradict the idea that licensure is primarily used to protect public safety. Occupations that are less likely to involve risk to the public are often more highly controlled than riskier occupations. For example, Nevada’s emergency medical technicians (EMTs) must complete 26 days of training and pass two exams before being licensed to work on an ambulance team. By contrast, Nevada’s drywall installation contractors must complete 1,460 days of education and experience—56 times the amount of training required of EMTs.

There is significant variation in licensing requirements for the same jobs across states. Licensing boards can require a minimum level of education or experience, a steep processing fee, or a passing score on examinations. In Nevada, 53 of the 75 licenses identified by IJ require all three. All but one require the applicant to pay a fee, the highest of which is $2,250 for a travel guide license.

What can be done? 

Occupational licensing should be the last resort and not the first in regulating occupations to protect the public.  There should be clear, legislated criteria for licensing an occupation showing a direct and serious public risk; if you don't meet them, the request is refused.  Other means of regulating occupations should be employed where possible.  Standards should be harmonized with other states and comparable qualifications from other states recognized in Nevada.  Arizona recently led the way in this effort.

Fairness is at the heart of the American Dream.  When companies or trade groups use the law to restrict competition and capture profits in cooperation with pliant legislators, we all suffer - starting with those just looking for a job. 

-- Mike Power