“Occupational regulation has served to limit consumer choice, raise consumer costs, increase practitioner income, limit practitioner mobility, deprive the poor of adequate services, and restrict job opportunities for minorities—all without a demonstrated improvement in quality or safety of the licensed activities.” S. David Young, who teaches accounting and finance at Tulane University, brings economic analysis to bear on the labyrinthine system of occupational regulation in America. His analysis indicts that system as a means to enrich the few at the expense of the many.

Young begins with an overview of occupational regulation, its kinds and extents. Nearly 1,000 occupations are regulated by some or all of the states. Registration merely lists practitioners on an official roster. “Today 643 occupations in the United States require registration.” Certification, which may call for certain qualifications, allows use of certain titles. “At present 65 occupations are certified in at least one of the 50 states.” Licensure requires perMI5sion from the state to engage in a given trade or occupation. “At present 490 occupations are licensed in the United States; some occupations, however, may be licensed in some states but only registered or certified in others.”

By restricting entry in the occupation, licensing limits the number of providers. Supply of a given service is therefore also limited. If demand remains constant, the price of the service will tend to rise. Monopoly rents, as the economist calls them, are captured as a result.

This means that regulation’s beneficiaries receive higher-than-market income thanks to government intervention, enriching themselves at the expense of consumers. The situation is complicated by “escalator” effects in licensing, which intensify regulation and expand it. “Escalator effects refer to the tendency common among all professions of increasing constraints on entry—for example, education, experience, and training requirements—after licensing laws have been introduced.”

Licensing also hinders innovation, because established members of a profession have a vested interest in their existing skills and prior training. Changes have been fought, at least for a time, by most professions through their control of the licensing process.

The history of occupational regulation provides ample evidence for the anticonsumer and anti-enterprise nature of licensing. After the American Revolution, the medieval and mercantilist regulations carried over from England fell into disuse. This threatened practitioner income. The medical profession, in the 19th century, was especially determined to eliminate competition and limit numbers. Their professional groups, the state medical societies, sought licensing and wished to dominate it themselves:

The early licensing movement met with considerable resistance, however. In the 1830’s and 1840’s, when the Jeffersonian/Jacksonian philosophy of laissez-faire was at its zenith, many consumers reacted negatively to state regulation of the medical profession. Their principal targets were state laws curtailing the operation of proprietary medical schools. Based on a firm belief in the doctrine of caveat emptor, reformers succeeded in preventing passage of licensing laws in several states and managed to have laws repealed in others. Consequently, by the mid-1800’s the medical profession was open to almost anyone who chose to hang out a shingle.

In response, the American Medical Association was founded in 1847. Its purpose then and now has been to raise practitioner income by limiting numbers and fending off alternatives. They have been highly successful. Licensing was sought in other professions and trades as well. “In the blue-collar trades, white-controlled labor unions were among the most vociferous and avid supporters of licensure. Plumbers, electricians, and railroad firemen all lobbied for licensing laws with the express purpose of excluding blacks.”

The surge in regulation from 1890 to 1920, including occupations, came about as part of a shift in academic thinking and consequently, public opinion from individualism to statism. This “ideological” explanation does not mean that political pressure or corruption were not at work as well.

The study of the economics of regulation has broadened from an analysis of its effects to the analysis of how we get regulation. We do not get regulation because it would serve the “public” but because the beneficiaries are concentrated and able to organize. The interest groups lobby and offer other benefits (legal and illegal) to politicians and bureaucrats. The benefits of deregulation, on the other hand, are diffused, making it hard to rally consumers. Young finds the results of reform efforts up to date to be unimpressive. “Individual liberty,” contends Young, “may be a longstanding American tradition but it has done little to stem the tide of professional regulation or its control by the professions. True reform can come only from the willingness of licensing opponents to meet the challenges posed by licensing advocates in the political, legal, and intellectual arenas.”

 

[The Rule of Experts: Occupational Licensing in America, by S. David Young (Washington, DC: The Cato Institute) $15.95]