New Goldwater Institute Analysis Says Strengthening Fraud Laws Could Protect People Without Hurting the Economy
PHOENIX — 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.
Licensing is harmful to job-seekers because it creates difficult barriers to entry for many professions. For instance, 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.
The practice of licensing hurts consumers too, because it drives up the costs of available services. Ultimately higher prices hurt licensed service-providers themselves. “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.
Yet this is not just about dollars and cents. Licensing requirements can intimately impact our 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.
Read “Six Reforms to Occupational Licensing Laws to Increase Jobs and Lower Costs” here.
Read Byron Schlomach’s bio here.
For more information, contact Lucy Caldwell at (602) 633-8986.
The Goldwater Institute protects America’s greatest inheritance—the liberty and economic freedom of the individual—by holding government accountable and standing up for regular taxpayers just like you. Learn more about the Goldwater Institute at www.goldwaterinstitute.org.
What the GI folks fail to understand is that the licensing requirements for many of the professions were requested by the professions themselves to keep out under trained people or poorly trained folks. This laissez faire attitude by the GI is at a new extreme. I don’t see why they just don’t change the name of the place to the Libertarian Institute.
Let’s compare to military training. Boot camp – basic training is nine weeks. Practically every enlisted profession in the military requires an apprentice school, even infrantryman – the duration of those schools range from 90 days to two years, depending upon the speciality, and most have a follow-on school wthin two years, usually another 3-6 months.
Do we want technicians in the market place that are not trained and tested with the health and sanitary needs addressed? Hair stylists deal with a variety of chemicals, not just cutting hair.
I am not sure that the GI researcher on this one can go much beyond theory. If anything, people want to know the services they are receiving have some level of training and safety standards. I think the $660 million in lost economic activity is at best a shot in the dark and the estimate is not substantiated or footnoted with any other validation study.
I simply don’t see this as any more than an opinion.
Jon–
You’re right in pointing out that licensing schemes are often requested (and run, for that matter) by professionals themselves. And while many do so ostensibly to promote high training and skills within an industry, many do so simply to keep out competition. What you fail to understand is that the market itself is a better regulator of many industries than licensing schemes, especially in a day of social media when a bad hairstylist’s name will make her/his way through facebook within an hour. Plus, these licensing schemes, while ostenbily drawn up to promote public safety and industrial competence, are often both cost-prohibitive and ineffective, not to mention inhibitive to economic growth.
Frankly, your military example makes no sense. The military is not exactly and “industry,” so to speak.
It’s not the government’s role or prerogative (with limited exceptions where public safety truly is at risk) to require permission from an individual before he can engage in the profession of his choice, especially for innocuous professions like hairstyling landscaping, etc. The market–and people themselves–will do a much better job weeding out untrained professionals–they won’t stay in business.
I don’t know that I’d call hairstyling innocuous.
Diseases can be passed through improper procedures.
There’s also the risk of injury to clients.
There’s certainly no shortage of those that fly under the radar and do hair out of their houses.
As for landscaping, well, any of us Arizona know how that works, licensed or not.
While I don’t entirely discount the theory of the market taking care of itself, a lot of people – especially now – are driven by price.
So getting trained on sanitization of hairstyling tools should a year + thousands of dollars? Seems to me that hairstylists could be certified cheaply, over a weekend. But then again, the Cosmo Board (i.e., the state-sanctioned cartel) would miss out on all that money.
Not to mention that the market would do just as good (strike that…better) of a job in ridding the marketplace of unsafe hairstylists.