Beware the Licenses

In the very readable Capitalism and Freedom, Nobel laureate economist Milton Friedman wrote about the economic consequences of labor unions, minimum wage laws, and occupational licensing. Anyone with even minor economics training (or perhaps even just a moment’s reflection) can tell you some of the basic costs and benefits of each. Simply put, they all involve concentrated, visible benefits and dispersed or difficult-to-detect costs. 

We’ve definitely talked about licensing here at the Show-Me Institute before; of the three topics listed above, it’s certainly the one we’ve dealt with most (perhaps because David Stokes has such a special place in his ire for the rent-seeking usually implied by occupational licensing). There may be a problem with the way labor economists percieve these three topics, however.

According to a recent post on Overcoming Bias, the preeminent textbooks deal with these topics out of all proportion from reality. According to the post:

In the U.S. now, less than 3% of workers earn the minimum wage, about 12% are in unions, and about 29% are required to hold a state-issued license to do their work.

In the popular textbooks however, slightly less space is devoted to minimum wage than labor unions, and licensing is covered scarcely at all.

Perhaps our fight against occupational licensing would be an easier one if labor economists spent more time covering the topic during their formative years. Or, perhaps more people should tell their friends about the simple arguments against most occupational licensing: barriers to entry increase price, often with no meaningful effect on quality — and quality is often best determined by success or failure in a competitive marketplace.