Reason Roundup

Occupational Licensing Doesn't Mean Higher Quality Services

Plus: FIRE teams up with Ice-T, self-preferencing shouldn't be an antitrust offense, and more...

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man cutting hair in a barber shop | Photo by <a href="https://unsplash.com/@hairspies?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Hair Spies</a> on <a href="https://unsplash.com/s/photos/barber?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Unsplash</a>
(Photo by Hair Spies on Unsplash )

Occupational licensing raises barriers, not quality. In an alarming number of U.S. professions, would-be practitioners have to obtain a government permission slip to work legally. This sort of occupational licensing might make sense for, say, doctors and pharmacists; less so for tree trimmers and tour guides. A lot of it seems to come down to gatekeeping—that is, existing workers and businesses wanting to keep the number of new entrants into the market low.

Proponents of occupational licensing (including politicians, people in licensed professions, and members of the general public who accept their rationale) will tell you that licensing schemes exist to ensure that workers are well qualified. But a new report from the Institute for Justice (IJ) challenges this conventional (and self-serving) wisdom.

"Licensing proponents argue occupational licenses make consumers better off by screening out workers likely to provide inferior service," IJ Senior Director of Strategic Research Dick Carpenter said. "But our findings offer no reason to believe licensing, and progressively stricter forms of it, promotes safe, quality service."

For the study, IJ—a public interest law firm that frequently challenges onerous occupational licensing requirements—looked at Yelp reviews for six types of services, comparing those in states with different types of licensing regimes.

The professions studied included interior designers, locksmiths, manicurists, tree trimmers, barbers, and cosmetologists. For the first four, IJ compared reviews in states where licenses were required for these professions with reviews in bordering states where no license was required. For barbering and cosmetology, IJ looked at states with less strict licensing regimes and compared them to states with stricter requirements. Overall, the study included nine sets of state pairings, with a focus on service providers located near state borders.

In one comparison—between licensed tree trimmers in Maryland and unlicensed tree trimmers in Virginia—the unlicensed professionals had higher ratings.

In eight out of the nine comparisons, IJ found no statistically significant difference in consumer ratings between licensed and unlicensed (or licensed and less-strictly-licensed) professionals.

"So, for example, reviews for cosmetologists in Connecticut were no better than those for cosmetologists in New York, even though Connecticut requires 1,500 hours of schooling compared to 1,000 hours in New York," IJ explained in a press release.

"There are a few possible reasons licensing might not guarantee safer, higher quality services," said Carpenter, who is one of two authors of the study. "First, ordinary market incentives may be doing the work on their own. Second, sometimes licensing requirements don't actually match what it takes to do the job well. Finally, steep requirements can also deter people who would do a good job from entering the field."

You can read the full IJ report—titled "Raising Barriers, Not Quality"—here.

FOLLOW-UP

DISCLOSE Act won't advance. Senators voted 49–49 yesterday on whether to proceed with the DISCLOSE Act, which would require groups engaged in political communication to disclose their donors. That means the bill won't proceed (and that's a good thing).

FREE MINDS

The Foundation for Individual Rights and Expression (FIRE) and Ice-T team up:

FREE MARKETS

Self-preferencing shouldn't be an antitrust offense, argues Giuseppe Colangelo of the International Center for Law and Economics in a new working paper. It's become popular among Democratic lawmakers and bureaucrats to suggest that tech companies shouldn't be allowed to give preference to their own products, such as when Amazon provides free shipping for its own wares but not those of competitors, Google highlights Google Maps at the top of search results, or Apple phones come pre-installed with Apple apps. Democrats argue that this should count as illegally anti-competitive behavior—that is, an antitrust violation. But in many cases, self-preferencing not only makes sense for the tech companies. It also makes for a better user experience.

Colangelo lays out the stakes in the abstract from his paper:

Whether self-preferencing is inherently anticompetitive has emerged as perhaps the core question in competition policy for digital markets. Large online platforms who act as gatekeepers of their ecosystems and engage in dual-mode intermediation have been accused of taking advantage of these hybrid business model to grant preferential treatment to their own products and services. In Europe, courts and competition authorities have advanced new antitrust theories of harm that target such practices, as have various legislative initiatives around the world. In the aftermath of the European General Court's decision in Google Shopping, however, it is important to weigh the risk that labeling self-preferencing as per se anticompetitive may merely allow antitrust enforcers to bypass the legal standards and evidentiary burdens typically required to prove anticompetitive behavior. This paper investigates whether and to what extent self-preferencing should be considered a new standalone offense under European competition law.

While the paper—which you can read in full here—focuses on European antitrust law and practices, it also has implications for American markets. A push against self-preferencing lies at the heart of the American Innovation and Choice Online Act, which is sponsored by Sen. Amy Klobuchar (D–Minn.) but enjoys bipartisan support.

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