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The Protection Racket of Occupational Licensing

Across the nation, millions of entrepreneurial Americans seek to create jobs, pursue their passion, or simply make a few extra dollars by starting their own business. But often, they are forced to abandon their dreams, not because they lack talent or capital, but because they do not have the government’s permission.

New Jersey resident Ernie Arias is one example. His business installs home entertainment equipment and he decided to add security systems to his list of services. However, the state of New Jersey requires more than three years of classes and experience before it will grant an occupational license to locksmiths and security installers. Arias abandoned the idea, saying, “There’s no way I could put in all that time and spend probably $2,000 on classes. You can build a house in New Jersey quicker and easier than it takes to get the license you need to put locks on the house.”

Benta Diaw, a native of Senegal, learned the art of African hairbraiding from her grandmother. After building a successful business in Seattle, the state of Washington demanded that she take 1,600 hours of courses on such services as pedicures and nose-hair trimming, but none on hairbraiding, in order to receive a state license.

Mercedes Clemens dreamed of opening a service offering horse massages (a therapy used to increase range of motion and to promote healing from injury). But Clemens—who is a licensed human-massage therapist and certified in equine massage—lives in Maryland. And Maryland law mandates four years of veterinary school for anyone who wishes to massage horses, despite the fact that veterinary schools do not teach how to massage horses.

These individuals, and many more like them, saw a need in the market and decided to meet it. However, their respective states prohibited them from doing so. They did not want to peddle child pornography, or sell counterfeit goods, or engage in some other rights-violating activity, but rather, they wanted to offer legitimate services to willing customers.

This may seem like some kind of Orwellian nightmare, but it is a situation faced by millions of Americans. Across the nation, more than eight hundred different occupations require some form of government licensing. Consider some of the professions that require a license: manure applicators in Iowa, upholsterers in Utah, and rainmakers in Arizona. If you want to put new fabric on a chair in Salt Lake City or spread cow dung in Des Moines, you have to take approved courses and pay the state the appropriate fees, or you will be a criminal. So, how did these bizarre laws come about?

Occupational licensing laws are enacted with the stated intention of protecting consumers from incompetent practitioners. But study after study has found that licensing boards do little to discipline incompetents. For example, Public Citizen, a consumer advocacy organization, reports:

Of 10,672 physicians listed in the NPDB [National Practitioner Data Bank] for having clinical privileges revoked or restricted by hospitals, just 45 percent of them also had one or more licensing actions taken against them by state medical boards. That means 55 percent of them – 5,887 doctors – escaped any licensing action by the state.

In these cases, the hospitals found it necessary to protect patients from incompetent or negligent doctors, but the licensing board did not. If operating on the wrong knee won’t necessarily cause action by the licensing board, what will? Young states that the most common reason for discipline against licensed professionals is activity that violates rules intended to limit competition, such as advertising restrictions. Being a bad doctor is not necessarily a cause for disciplinary action by the medical board; being a good marketer is.

If licensing is not protecting consumers, why do many professions require a license? Jack McHugh, of the Mackinac Center for Public Policy, writes: “The dirty little secret about state licensure is that the people who lobby for it are usually the stronger competitors of those who would be licensed. Their goal is not to protect the public, but instead to raise barriers to new competitors who might cut prices and lower profits.” By erecting barriers to new practitioners, licensing limits competition and increases the wages of those who have managed to jump through the government’s hoops.

In the process, occupational licensing increases the prices that consumers must pay. Licensing tends to create a high quality, high price service that may not fit the needs of all consumers. Because of licensing, highly skilled practitioners are often required to perform routine services that could be performed effectively, safely, and at a lower cost by less skilled individuals. For example, a light fixture can be replaced by a competent handyman, but licensing may require that the task be performed by a licensed electrician. The results of the restrictions imposed by licensing are fewer choices for consumers and higher prices. Many choose to do without the service, or do it themselves, and often with deadly results. Professor S. David Young writes:

The incidence of rabies is higher, for example, where there are strict limits on veterinary practice, and as Sidney Carroll and Robert Gaston documented, rates of electrocution are higher in states with the most restrictive licensing laws for electricians. Apparently, consumers often do their own electrical work in highly restrictive states rather than pay artificially high rates for professionals, with predictably tragic results.

Through higher prices and limited choices, consumers—the alleged beneficiaries of licensing—are also victims of this injustice.

In a free market, individuals can offer the products and services of their choosing, and consumers can accept or reject that offer. Each is free to act on his own judgment in the pursuit of his own values and happiness. The only proper purpose of government is the protection of this right.

Long ago, James Madison recognized the injustice of prohibiting individuals from working as they choose: “That is not a just government, nor is property secure under it, where arbitrary restrictions, exemptions, and monopolies deny to part of its citizens that free use of their faculties, and free choice of their occupations…”

Isn’t this a description of occupational licensing? Licensing creates “arbitrary restrictions, exemptions, and monopolies” within a profession; it denies individuals the freedom to earn a living as they choose. Occupational licensing should be abolished.

Does this mean that consumers would be at the mercy of unscrupulous hacks? Hardly. First, nobody has a right to engage in fraud, that is, intentionally misrepresent his skills, training, or qualifications. Second, in a free market, individuals must take responsibility for their hiring decisions, rather than relying on the false security of licensing. Even with the “protection” afforded by licensing, consumers frequently turn to third parties for information regarding products and service providers. Examples of highly popular third parties include: Good Housekeeping, Consumers Reports, the Better Business Bureau, Angie’s List, and trade associations.

Another alternative to licensing is certification programs, which are offered by trade associations, product manufacturers, and other third parties. These differ from licensing in that they are voluntary. Practitioners are free to obtain certification and the benefits that come with it, such as verification of competency and potentially higher wages, or forgo certification and lessen the chances of obtaining higher wages. Consumers are also free to choose certified professionals and pay higher prices, or employ uncertified, lower priced practitioners. Both producers and consumers are free to act on their judgment—to contract as they choose—according to their needs and values.

If some street thug demanded protection money so that you could operate your shop, you would recognize his demands for what they are—extortion. The principle does not change merely because those making the demands wear a tie and have the backing of government.