Study: Occupational Licensing Rules Hurt More Than They Help

Published July 3, 2015

Across the nation, state legislatures are re-evaluating the necessity of regulating individuals’ occupational choices. Forthcoming research to be published in the Harvard Journal of Law and Public Policy, authored by Heritage Foundation Senior Legal Research Fellow Paul Larkin, examines occupational licensing regulation through the prism of public choice theory.

Public choice theory is an economic model studying how groups of people, such as state legislatures or regulatory bodies, make decisions to advance their collective goals.

Unseen Consequences

Occupational licensing rules may seem entirely beneficial, Larkin says, but they are not free of consequences.

“The natural reaction is to say, ‘certainly we don’t want unlicensed surgeons to be practicing medicine.’ The response to that, however, is to say, ‘of course, but that is one out of hundreds of areas that licenses are required, and the vast, vast, majority of them are not only completely unnecessary, in order to ensure the public is adequately protected, but they are damaging to particular individuals,” he said.

“Unfortunately the individuals harmed are unseen and unknown,” Larkin said.

Granting Rent

Larkin says politicians use occupational licensing rules to buy support from special-interest groups.

“Legislators can grant this rent in the form of licensing requirements to people, and if they do it right it gives them certain benefits up front, whether it’s votes or campaign contributions,” he said. “What you have is a corruption of the political process that hurts the average member of the public by raising prices, and has a terrible effect on the individuals who cannot enter this line of work because of the licensing.”

Replacing Regulations With Reviews

Edward Timmons, an associate professor of economics at Saint Francis University, says increasing the amount of information available to consumers is more efficient than preventing people from working in their desired professions.

“In the modern economy we see so many accountability functions through the development of web-based and social media-based communication that it renders many of these types of licenses unnecessary,” he said. “Angie’s List and Yelp alone replace many, if not most, of the protections formerly provided by licensing.”

Elizabeth BeShears ([email protected]) writes from Trussville, Alabama.

Internet Info:

Paul Larkin Jr., Harvard Journal of Law and Public Policy, “Public Choice Theory and Occupational Licensing”: