One of the most common ways that interest groups work to push their above market levels at the expense of society is through occupational licenses. By raising the legal barriers to entry, workers are able to decrease their competition and drive up their wages.
A common reaction these complaints is that “shouldn’t doctors and nurses be required to have occupational licensing?”. If only it were just doctors and nurses we’d have much less of a problem. The list of jobs requiring licenses is absurd reading. A sample from Klein (2009) includes junkyard dealers in Ohio, auctioneers in several states, beekeepers in Maine, fortune tellers in Maryland, lightning rod installers in Vermont, lobster sellers in Rhode Island, manure applicators in Iowa, movie projectionists in Massachusetts, mussel dealers in Illinois, rainmakers in Arizona.
As this list of absurd jobs suggests, licensing is more widespread than most would imagine. In the 1950s around 5% of the workforce had jobs that required state level licensing. That number had grown to 18% by 1980, and at least 20% by 2000. According to a recent paper by Morris Kleiner and Alan Krueger nearly 35% of workers are now required to be certified or licensed.
What does having a license entail? According to Kleiner and Kreuger, among licensed occupations 85% are required to take an exam, 70% must take continuing education classes, 43% require a college education, and more than 50% require an internship. These requirements do not sound so absurd if you’re thinking about nurses and doctors, but remember that the list includes chimney sweeps and fortune tellers.
The recent trend of occupational licensing for interior designers highlights that it is not just the highly skilled that have steep licensing requirements. A bill recently introduced in the Pennsylvania House of Representatives would require interior designers to have a four-year design school degree, a two-year internship, and to pass an exam.
Like the majority of occupational licenses, there is no economic justification for this. The sole purpose is a handout to interior designers who already have these qualifications.
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Saturday ~ November 28th, 2009 at 1:52 pm
kendall
…so what is the root cause of this problem ?
Seeking competitive advantage over one’s commercial & business rivals is normal and economically healthy.
However, raising “legal barriers” to normal competition is not.
How are these “interest groups” so able to erect licensing barriers on such a wide scale ? What is the mechanism they have mastered ?
The answer, of course, is a corrupt American political system… where small minority interests can easily exert vast general police power against the majority interests of the public.
Economics and Politics do not not mix well.
You are really describing a ‘political’ problem… not an economic one.
What is your opinion on a remedy to this licensing problem ?
Saturday ~ November 28th, 2009 at 10:09 pm
Steve Hamlin
You don’t seem to differentiate between those occupations where life & safety are at risk and those that aren’t – the point would be better made if you did.
For example – I WANT a lightening rod installer to know what he is doing (should electrical work be unlicensed)? Mussel dealers – like butchers, selling live animals for food exposes consumers to food risk, and so licensure is not anti-competitive so much as pro-public health. Manure applicators – if you need a license to farm or apply pesticides, then this is not much different.
Beekeepers – borderline.
Interior designers – silly to require a license – the market will control.
Fortune tellers and rainmakers – ridiculous, unless the licensure is really to prevent public fraud and control what those licensed can do to take advantage of elderly, etc.
There are other reasons for mandatory licenses other than to prevent competition on behalf of the industry.
Saturday ~ December 5th, 2009 at 11:44 am
In Defense of Occupational Licensing II: Goat Testis Edition « Modeled Behavior
[...] ~ December 5th, 2009 in Science, Society | by Adam Ozimek I criticize occupational licensing as an inefficient grab at economic rents, but as I’ve pointed out [...]