The following originally appeared on EconomicFreedom.org, a project of the Charles Koch Institute. The Institute republished it here on July 31, 2015.
When the government grants permission to work
What do teeth whitening in Connecticut, hair shampooing in Tennessee, and interior designing in Florida have in common? They’re all licensed occupations. In other words, only individuals who have completed the necessary steps to acquire a license can legally provide these services.
Occupational licenses are intended to protect the public from the dangers of unqualified providers. But over the past 50 years, state and federal authorities have been licensing more and more occupations that pose little or no obvious threat to the public. In fact, today, as many as one in three U.S. workers requires a license—government permission to work.
So what’s the impact of all this licensing? Its effect on our economy is threefold: Licensing enables industry-wide cronyism, disproportionally burdens lower-income individuals, and hampers job growth.
A Crony’s Tale: Whitening Teeth
In a free market economy, companies succeed by offering better products and services to their customers. But in a less-free economy, companies can also lobby for licenses that restrict competition, stunt innovation, and limit market entry. For consumers, the outcome is generally the same: higher prices without higher quality products.
A case in point is the Connecticut Dental Commission (mostly dental professionals), which has declared teeth whitening without a dental license a felony. As a consequence, local mall salons, tanning booths, and other non-dentists (which charged $100–150 per session) have been restricted from offering tooth-whitening services to their customers, who must now go to dental professionals ($300–700 per session) instead.
Licensing and Lower Incomes
Licensing schemes often impose hefty time and monetary costs on low-income occupations, hurting those trying to enter the workforce and restricting their career choices and opportunities. Becoming a licensed shampoo technician in Tennessee, for instance, involves at least 300 hours of course instruction in “the practice and theory of shampooing at a school of cosmetology.”
The Institute for Justice tracks licensing regulations for lower-income occupations such as bartenders, barbers, and landscape contractors. Its 2012 report, Licensed to Work, shows that the average requirements for such jobs are $209 in fees, one exam, and nine months of training. Once licensed, the average worker can expect to make less than $30,000 per annum.
Interior Designers—More Dangerous Than They Look?
In 1988, the state of Florida decided to require all interior designers working on commercial buildings to obtain a license. Why? Because the state felt it needed to protect Floridians from . . . well, it’s not exactly clear what. The move came in response to lobbying efforts by Florida interior designers, who persuaded lawmakers to restrict use of the title “Interior Designer” to those who undertook six years of costly post-secondary education, an apprenticeship, and a state exam.
However, the state regulatory board now admits it lacks evidence that licensing commercial interior designers has led to better job performance, greater safety, or “otherwise benefited the public in any demonstrable way.” Perhaps that’s why Florida is one of only three states in the U.S. that limits this particular form of economic activity by requiring a license.
In societies that enjoy high levels of economic freedom, individuals with great ideas can pursue those ideas and try to turn them into great products. Everyone else in society benefits as a result, either from those new products or from the new jobs they create.
But today, occupational licensing is eroding U.S. economic freedom—hindering the launch of new enterprises, restricting competitors from entering industries, and stifling employment. In short, we’ve given our lawmakers and regulators the power to snuff out ingenuity, innovation, and entrepreneurship.