Licensing laws hinder economic activity

State license requirements for professions ranging from fumigators and ginseng nurserymen to horse traders and hair braiders may cost Arizona more than half a billion dollars annually in lost economic activity, according to a new analysis from the Goldwater Institute.

In Six Reforms to Occupational Licensing Laws to Increase Jobs and Lower Costs, Goldwater Institute economist Byron Schlomach, Ph.D., details how government-required licensing hurts all Arizonans—job-seekers, consumers, and licensed professionals alike.

According to Schlomach’s analysis, licensing is harmful to job-seekers because it creates difficult barriers to entry for many professions. Schlomach as an example, obtaining a cosmetology license in Arizona requires 1,450 hours of costly training at a cosmetology school, followed by $142 in exam fees and a combined 372 days of education and experience. “Licensing discourages people from entering an occupation in which they might succeed if their success hinged only on the satisfaction of customers,” said Schlomach.

Schlomach’s says that the practice of licensing hurts consumers too, because it drives up the costs of available services. Ultimately higher prices hurt licensed service-providers themselves, according to the Schlomach’s analysis. “In response to higher prices, consumers either learn to do without those services or they do with less, thereby reducing their purchases of services from the licensed profession,” Schlomach noted.

Schlomach estimates that licensing may cost Arizona as much as $660 million annually in lost economic activity.

This is not just about dollars and cents. Schlomach’s says that licensing requirements can intimately impact people’s daily lives. Consumers may forgo modest medical treatments because the cost to have a doctor perform the procedure is prohibitive. But if the treatment were allowed to be administered by a nurse or other professional, the price may be more affordable, putting the treatment financially within reach. Some people die without preparing a last will and testament, because an expert in will preparation cannot legally sell his services without completing law school and passing the bar exam, even if they never perform any other legal service besides will preparation.

Most licensing requirements are put in place in an effort to protect people from a dangerous or fraudulent service. In some cases licensing can protect consumers. But in other cases, requiring a person to be licensed doesn’t protect people at all. For example, some states require people to be licensed if they want to be called an interior designer. But interior designers can’t design the structure of a house or business. An interior designer is the person who picks the color scheme and decorative touches. Consumers don’t need the government to protect them from a bad paint job, says Schlomach.

Schlomach says strengthening the punishments for committing fraud could eliminate the need for some licensing requirements. “If a professional misrepresents who they are or the skills they have and someone gets hurt, they should be held accountable. And that can be done with existing laws, we don’t have to require a government license too,” said Schlomach.

An estimated 800 occupations are licensed in at least one state. In Arizona about 85 professions are required to be licensed by the government, making up approximately 10 percent of the state’s workforce.

In Six Reforms to Occupational Licensing Laws to Increase Jobs and Lower Costs, Schlomach identifies common-sense reforms that could open career opportunities and reduce prices without sacrificing consumer safety, including “sunrise” provisions to require licensing advocates prove the barriers are needed before they are enacted, and a requirement that all licensing laws be periodically reviewed to make sure they are meeting a real consumer safety function. Schlomach also recommends that licensing boards have a supermajority of members drawn from the general public rather than the licensed profession itself.

1 Comment

  1. I would like to see licensing costs go down, but I also like knowing my hairdresser has a license. Because she had to go to school to be licensed, she has the knowledge needed to sterilize the shears she uses on me and others, to prevent the spread of infections, etc.

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