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Thursday, March 02, 2006

A License to Raise Prices?

Who does licensing protect, consumers or producers?

Do You Need a License to Earn a Living? You Might Be Surprised at the Answer, by Alan B. Kreuger, Economic Scene, NY Times: It is well known that doctors, dentists, and lawyers must be licensed to practice their professions. But what about occupational therapists, manicurists and barbers? How about fortune tellers, massage therapists, shampoo assistants, librarians, beekeepers, electrologists and movie projector operators? These are just a sampling of the hundreds of occupations that require a license in at least some states or counties.

In a new book,  ... Morris M. Kleiner, an economist at the University of Minnesota, questions whether occupational licensing has gone too far. He provides much evidence that the balance of occupational licensing has shifted away from protecting consumers and toward limiting the supply of workers in various professions. A result is that services provided by licensed workers are more expensive than necessary... Perhaps as many as 3 of every 10 workers nationwide are required to obtain a license to do their job.

The usual rationale for occupational licensing is that it helps protect the public from unqualified providers. When it comes to matters of life and death, like jobs in the medical fields, this rationale is on stronger ground than when it comes to a manicure or a shampoo. Several studies have examined the effect of license requirements on performance ... Summarizing the literature, Professor Kleiner concludes, "there is little to show that occupational regulation has a major effect on the quality of service received by consumers."

At the same time, the hurdles imposed by occupational licensing reduce the supply of workers in many regulated professions, which drives up wages in those jobs and the price of services. ...

While it is unlikely that the tide of occupational licensing will be reversed anytime soon, one practical solution would be to require licensing boards to have some representatives of the public serve as members to look out for consumers' interests. ... Professor Kleiner also recommended that certification be considered as an alternative to licensing. Certification sends a signal that workers have certain qualifications, but does not prevent consumers from purchasing services from uncertified providers if they so choose...

    Posted by on Thursday, March 2, 2006 at 12:32 AM in Economics, Market Failure, Regulation | Permalink  TrackBack (0)  Comments (16)


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