Service Trades Use Licensing to Reduce Competition, Raise Prices

Published February 24, 2011

A bad haircut doesn’t pose a threat to your personal safety, nor does a floral arrangement you dislike or a wing chair that seems out of place.

So why do some states require people to spend thousands of dollars and more than 1,000 hours of instruction before they can become a barber? Why must people pay for a license and go through classroom instruction to create a floral bouquet or do interior design?


These laws mean money for states that charge for the occupational licenses, and money for those already in an occupation who want to use government to shut out competitors or make it more costly for others to enter the business.

All across the country, people in certain occupations that have few or no licensing requirements are lobbying to get them imposed. Their lobbying usually includes requests for “grandfather” clauses exempting them from having to suffer what they want all newcomers to the occupation to go through.

“Occupations prefer to be licensed because they can restrict competition and obtain higher wages,” Morris Kleiner, a labor professor at the University of Minnesota, recently told The Wall Street Journal. “If you go to any statehouse, you’ll see a line of occupations out the door wanting to be licensed.”

Kleiner raises an issue that has received far too little attention in recent years. It’s especially relevant these days, when the country is trying to struggle its way out of recession and high unemployment. Most occupational licensing requirements make it more difficult for people to find work, and they deliver little or no benefit to the community.

For people who might want to use a licensed service—barber, hairstylist, interior designer, pet groomer, florist, etc.—there’s no benefit: Licensing typically drives up the cost. Kleiner estimates U.S. consumers spend an extra $116 billion a year because of occupational licensing requirements.

The Council on Licensure, Enforcement, and Regulation, a trade group of regulatory agencies, reports at least 1,100 occupations must be licensed, up from 800 in the mid-1980s.

More than 20 percent of today’s workforce must be licensed, up from less than 5 percent in the 1950s, according to “Occupational Licensing: Ranking the States and Exploring Alternatives,” a 2007 study of state licensing requirements published by the Reason Foundation. The study noted “there were several cases in which neighboring states had significant differences in the number of licensed job categories: California (177) and Arizona (72), Arkansas (128) and both Missouri (41) and Mississippi (68), New Jersey (114) and Pennsylvania (62), North Carolina (107) and South Carolina (60), Tennessee (110) and Alabama (70), and Florida (104) and Alabama (70). If some places work just fine with minimal or no regulations, why must others be plagued with so many restrictive laws? Are things so drastically different just across state lines that this disparity could be justified? Not likely.”

The usual argument for licensing is to protect the public from harm, but we already have anti-fraud laws, lawsuits, and other means to keep people in check. And what, exactly, is the threat from a florist, interior designer, or pet groomer?

Even in the medical field, there’s probably no good reason for state licensing. Does anyone believe a bureaucratic state agency is going to be more careful in evaluating doctors and nurses than hospitals and clinics that stand to lose millions of dollars and suffer damage to their reputations by hiring unqualified people? Hospitals and clinics sometimes do make bad hires, and this happens despite licensing requirements.

Reputations and referrals are what keep people in business or drive them out, with or without licensing. If you see a friend with a bad haircut, you’re not likely to go to his barber.

Competition, not government, is the best guarantee of good service.

Steve Stanek ([email protected]) is a research fellow at The Heartland Institute in Chicago.