Occupational licensing is often a tool that a more politically powerful supplier of some service uses against a politically weaker, competing kind of supplier. For instance, dentists use licensing to restrict competition from dental hygienists.  A recent working paper by Chevalier, Harrington, and Morton looks at how licensing in Florida has been used by funeral directors to protect them from competition from direct disposers, who offer cheaper “no frills” cremations. It’s an excellent case study for how these regulations work.

Funeral directors used to be the only ones allowed to perform cremations in Florida. But the state changed it’s licensing laws in 1979 to create a new type of worker, direct disposers, and a new type of firm, direct disposal establishments, who would be allowed to specialize in a much simpler cremation with less regulatory burden.

Both occupations have required a license, but becoming a direct disposer is easier than becoming a funeral director. Direct disposers only need a high school degree and a few courses, which means one could become one in a few months. In contrast, funeral directors are required to have some college, mortuary school, and an apprenticeship. The difference in crematorial services that each could offer is that direct depositors can not include viewing or memorial services.

As a result, by 1999 direct disposers performed around 20% of cremations in Florida each year. In response to the increased competition, the Florida Funeral Directors Association lobbied for licensing changes that would end direct disposers.

What they got was a series of regulatory changes starting in 2000 that severely reduced the competitiveness of direct disposers. These included setting facility requirements, preventing disposers from operating at the same location as a funeral home, and requiring that disposal facilities have a licensed funeral director in charge. The last one was the nail in the coffin (or lid on the cremation jar?) for direct disposers. The tying of the lower-skilled occupation to the higher-skilled one is analogous to the requirements used to protect dentists from competition from hygienists, and doctors from nurses.

These restrictions have been a success from the point of view of the Florida Funeral Directors Association. As shown in the chart below, they have helped funeral homes regain market share, cutting the market share of direct disposers nearly in half over the past decade. Note that this does not even reflect the 2010 change that requires each disposal facility be managed by a funeral director. The authors speculate that this regulation will increase funeral home market share back to 100%, killing off disposers completely.

 The result of this decrease in competition is that prices have predictably increased. The authors estimate that people are paying 9% more for cremations than they would be without these laws, and that the total impact was to increase cremation expenses by $9 million a year. What this amounts to is tax on grieving families to protect one kind of worker at the expense of another, less educated worker.

This is an understudied economic issue relative to other labor market regulations like unions or minimum wage, so it’s good to see more research in this area.

About these ads