Wednesday, October 22, 2008

A License to Carry

In the United States today, more than 500 different occupations are licensed in at least one state. It is estimated that up to one-third of the work force is affected by licensing laws.

Occupational licensing is generally proposed as a method for protecting the public from charlatans and incompetents. While the specific requirements vary, licensing typically requires the applicant to demonstrate competency in the field, complete specific educational requirements, and pass a licensing test.

This might sound good and reasonable. After all, nobody wants a mechanic operating on their gall bladder. But like most government programs, licensing accomplishes the opposite of its stated purpose.

In an article titled Occupational Licensing, S. David Young writes:

A careful analysis of licensing's effects across a broad range of occupations reveals some striking, and strikingly negative, similarities. Occupational regulation has limited consumer choice, raised consumer costs, increased practitioner income, limited practitioner mobility, and deprived the poor of adequate services—all without demonstrated improvements in the quality or safety of the licensed activities.

By limiting entry into a particular profession, licensing reduces competition in that profession. When the supply of a product or service is restricted, its price goes up. This may be good for the licensed professional, but it certainly isn't good for the consumer or the individual who wishes to enter that profession. It should not come as a surprise that most licensing requirements are supported by those in the profession. Indeed, licensed professionals often push for tougher restrictions to further impede entry into the field.
The tendency in all professions is to increase constraints on entry after licensing laws have been introduced, with existing members of the occupations protecting themselves with "grandfather clauses" that permit them to bypass the new entry requirements.

Many requirements found in licensing statutes and enforced by licensing boards are there by dint of custom or some arbitrary choice, not because the public is really served by them. Requirements are rarely based on the levels of knowledge, skill, ability, and other traits truly necessary to ensure adequate service. Apprenticeship requirements, for example, often bear little relation to the actual amount of time needed to acquire minimum competence. Until the courts called a halt to it, for example, it took longer in Illinois for an apprentice to become a master plumber than for a newly graduated physician to become a Fellow of the American College of Surgeons.

All licensing does is make it illegal to enter a profession without jumping through hoops and paying fees. And this, we are to believe, somehow protects the public.

I happen to own a business in a trade-- paint contracting-- that is not licensed in Texas. In many states, painting contractors must be licensed, and there have been attempts to institute licensing in Texas. Not surprisingly, those efforts are being led by painting contractors.

Contractors argue that licensing will eliminate illegitimate-- i.e., unisured, fly-by-night-- contractors and allow legitimate contractors to charge a fair price, instead of being forced to compete on price. This argument is wrong in more ways than I care to address, but I will address two key issues.

1. Contractors in states with licensing complain about unlicensed contractors driving down prices. In other words, licensing did nothing to eliminate illegitimate contractors. When confronted with this fact, licensing supporters proclaim that what is needed is more rigorous enforcement. Enforcement of course, costs money. And guess who will pay for that enforcement? It certainly won't be the contractor, because he will pass that cost on to his customer. Which means, consumers will pay more for contracting services while having fewer contractors to choose from.

You might think that I'm a fool to oppose licensing. I would easily be grandfathered in, and therefore, I could easily increase my income. Such a view is myopic and ignores the cost of that increased income-- my freedom. Which brings me to the second issue.

2. By making entry into a profession illegal, licensing is an act of force. In my context, licensing would make someone a criminal for painting a bathroom without a license. Unless a painter breaks into someone's home and paints a bathroom without the consent of the owner, the painter has not violated anyone's rights.

Licensing is a violation of an individual's moral right to take the actions necessary to sustain and enjoy his life. Licensing prohibits an individual from working without first obtaining permission from the State.

Some argue that they just want everyone to play by the same rules. But they fail to question whether those rules are fair. And the certainly ignore the methods by which those rules are imposed.

Low-priced competition is a perpetual issue in the contracting trades. Rather than build a better business, contractors (or any profession that seeks licensing) put down their paint brush and reach for a gun. Rather than offer greater value to their customers, contractors seek to simply prevent others from entering the profession. And if someone is so brash as to paint a bathroom without a license, then we'll just seize his property and/ or throw him in jail.

Consumers do not benefit from licensing. Their choices are reduced, and their costs are increased. They do not have the option of hiring a young, inexperienced, but honest and hard working, individual to paint their bathroom for a lower price.

But doesn't licensing protect consumers from incompetents? If you believe that then you must also believe that the Post Office is the model of efficient, friendly service. If you believe that then you must also believe that Congress is a bastion of upright statesmen. Young writes:

Perhaps the most frequent criticism of licensing has been the failure of licensing boards to discipline licensees. A major cause is the reluctance of professionals to turn in one of their own. The in-group solidarity common to all professions causes members to frown on revealing unsavory activities of a fellow member to the public. Going public regarding infractions, no matter how grievous, is often viewed as disloyalty to the professional community.

Indeed, licensing agencies are usually more zealous in prosecuting unlicensed practitioners than in disciplining licensees. Even when action is brought against a licensee, harm done to consumers is unlikely to be the cause.

Licensing does nothing for consumers except drive up prices and create a false sense of security. Consumers believe that the licensing process insures competency and honesty, neither of which is true. A dishonest hack can pay a fee and pass a test.

In the end, licensing is nothing more than legalized thuggery. Coercion is used to prevent entry into a profession and impose higher costs on consumers. If a contractor beat up a competitor at the paint store he would be charged with battery. If he took money from a customer he would be charged with theft. The nature of his actions do not change simply because he uses government coercion in the form of licensing as his proxy.

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