A New Analysis of the Implications of Occupational Licensing

Everybody talks about occupational licensing, but nobody does anything about it.

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American policymakers are approaching cross-ideological consensus about the use and abuse of occupational licensing. Occupational licensing is a kind of labor regulation that has spread across America's economy; for every union member in America, there are more than two licensed workers. The misuse and overuse of occupational licensing dampens job creation, innovation, productivity, and consumer choice.

Research on occupational licensing continues to demonstrate that, as occupational licensing expands, it is often accompanied by significant costs—such as higher prices and a hobbled labor market—but not by the benefits, like higher quality, that presumably constitute occupational licensing's selling point. Criticism about occupational licensing overreach is recurrent and bipartisan, extending from the Obama Administration to the Trump Administration to the Biden Administration.

One weakness in current research on occupational licensing, though, is that although it emphasizes diagnosis of the problem, it is relatively weak on recommended cures. In this respect, discussion and analysis of occupational licensing bears some similarity to the discussion and analysis we typically see about the federal budget. It is easy to find policymakers and analysts who charge that the federal budget is, in general, too large, too wasteful, and in need of reform generally. It is more difficult to find analyses of the federal budget that identify particular programs or sectors and then explain that those aspects of the federal budget should be shrunk, transformed, or eliminated entirely.

This has something to do with the fact that just about every aspect of the federal budget has created its own defenders who are not only relatively knowledgeable about the subsidies it creates, but also benefit from those subsidies and thus have an interest in being ready, willing, and able to strike back at critics. Indeed, public choice analysis suggests that the defenders of some particular aspect of the status quo can be expected to be at least as knowledgeable as those who seek to reform the system. It is therefore unsurprising that (to paraphrase a remark apocryphally attributed to Mark Twain) everybody talks about occupational licensing, but nobody does anything about it.

That's a bit of an overstatement, of course: in some respects, occupational licensing reformers have produced small victories. Some policymakers have pushed for interstate/cross-jurisdictional licensing recognition, and they deserve credit for this erosion of employment barriers, but this is weak tea.

Imagine that each state in the Union contained a small private club with extremely selective membership requirements, and that you were tasked with figuring out how to give more people access to your state's club. Certainly you could say: let's have interstate membership recognition, so that someone who's a member of an out-of-state club could use our own facilities. That could increase club participation slightly. But there is no getting around the fact that if you really want to admit a significantly larger number of people into the club, you're going to have to consider the prospect of admitting more people who lack any previous club membership whatsoever.

This brings us to the question of why we exclude people from these clubs generally: almost any serious analysis of occupational licensing will necessarily discuss the rationale or justification of licensing in particular cases. The work of the analysts at the Institute for Justice is typically central to discussions of this issue: analysts of reform in this area will often find that the Institute for Justice has gotten there first. IJ's inverted pyramid, which lays out how various regulatory needs might justify various forms of occupational regulation, forces consideration of two big questions: what is the justification of any particular system of licensing, and how efficiently does that system of licensing satisfy that justification?

The implicit policy recommendations in IJ's pyramid are extraordinarily helpful if we want to understand and evaluate justifications of occupational licensing. In a recently published article in the John Marshall Law Review ("Regulating Glamour: A Quantitative Analysis of the Health and Safety Training of Appearance Professionals"), I analyze the state-mandated training requirements for several classes of "personal appearance professionals"—that is, barbers, cosmetologists, and manicurists.

I find that only a small fraction of the required training hours for barbers and cosmetologists can be justified on health and safety grounds. I also find that the majority of these training requirements cannot be justified with any public-interest rationale at all. This suggests that—at the very least—the training hours that the states require for many personal appearance professionals could be cut by around 75% without eliminating any of the training that focuses on the strongest justification for licensing, namely, health and safety concerns.

It is worth emphasizing here that the category of personal appearance professionals exemplifies large problems of licensing. Those who want to practice (for instance) cosmetology must forgo about a year of income, which implies the payment of substantial tuition and/or the accumulation of substantial debt, in order to get permission to practice an occupation that doesn't pay especially well. If this situation does not shock your conscience, I hope that it at least provides noticeable voltage.

Perhaps the above helps to explain why I wrote "Regulating Glamour." In my next two posts, I will go into detail about this paper's argument: the nature of state-required education and credentials for appearance professionals, the kind of mandatory educational requirements these professionals face that could be jettisoned with little or no cost to the public, and the nature of the curricular assessments that the paper performs. Policymakers who actually want to do something to reform occupational licensing should find this discussion especially useful—and it's my hope that some of them will view the paper's findings as an opportunity for reform.