RALEIGH – One of the most common and damaging state restrictions on individual liberty has few champions among those who profess to be “civil libertarians.” I’m talking about occupational licensing.
With its unsavory origins as a corrupt protection racket for business and labor interests, particularly aimed at blacks during the Jim Crow era, restrictive licensing laws ought to be junked as archaic, unfair, and counterproductive. I’ve written about the issue a number of times in the past, but please allow me to add two new pieces of evidence to the large pile on the “con” side of the scale.
First, University of Minnesota economist Morris Kleiner is the author of a key academic study of occupational licensing published in 2006. In a recent interview, Kleiner summarized his findings on the “consumer-protection” argument. “Occupational licensing has either no impact or even a negative impact on the quality of services provided to customers by members of the regulated occupation,” he said. Licensing laws are passed to increase the incomes and profits of “regulated” professions and industries, he said, both through squashing competition and giving consumers the (unwarranted) impression that quality has been enhanced, thus stimulating demand.
Kleiner estimated that occupational licensing costs the economy about $100 billion a year worth of lost output while transferring $300 billion a year from the pockets of consumers to those who work in the licensed occupations. That’s a massive forced transfer of wealth by government – essentially, one of the most expensive taxes we pay.
In the most-recent edition of The Cato Journal, David Skarbeck from the George Mason University economics department published a paper approaching the problem in a fascinating manner. He looked at the case of Florida after the destruction of Hurricanes Frances and Katrina. In order to speed recovery, the state government lifted restrictions on roofing contractors, allowing greater entry into the market for repair and rebuilding services. Given the desperation that some property owners feel after storm damage, some might think that occupational licensing would be a particularly valuable protection for consumers in the aftermath of hurricanes, but Skarbeck found no significant evidence for such an effect by examining data on initiated and substantiated complaints against contractors.
“If citizens of Florida are capable of judging the quality of roofing services in the wake of Hurricanes Frances and Katrina,” he concluded, “then why are they not capable of doing so in non-crisis situations when they have more time to gather information? It is unlikely that a state of emergency informs or empowers.”
The argument against occupational licensing is not that government has no proper role policing fraud. This is essentially a debate about which tools are best suited for the job. Licensing is, to put things in First Amendment terms, a kind of “prior restraint.” It assumes that regulation at the front end is the most efficient means of deterring predatory behavior. But the best-available evidence suggests that punishing bad actors after the fact works just as well to deter fraud without jacking up prices to consumers and limiting opportunities for start-up companies and young people seeking to enter a profession. Nor should there be any legal barrier to voluntary certification systems, which give consumers useful information if they wish it but don’t work unfairly to protect incumbent firms from competition.
Can North Carolinians do without state-approved cartels cutting their hair, selling their goods at auction, and performing a variety of other personal and professional services? Absolutely. And many of us believe firmly that they have a natural right to do so, to buy and sell legal goods and services without getting some bureaucrat’s permission.
Hood is president of the John Locke Foundation.