Don’t Forget the Basics of Occupational Licensing

There are several occupational licensing bills being considered in the legislature right now. In general, occupational licensing is red tape that makes it harder for workers to get jobs and unnecessarily involves the government in the market. Putting aside the specifics of the legislation for now, there are some basic points on occupational licensing that policymakers should keep in mind.

• Attempts to license certain occupations are almost always initiated by the current practitioners of that field. Whether framed as a safety measure or a benefit to consumers, don’t be fooled. Practitioners personally benefit from limited competition and higher prices brought about by licensing. It is the classic case of concentrated benefits versus dispersed costs.
• Promises about what occupational licensing will achieve often fall short. Instead of improving service quality, we often see unintended consequences like do-it-yourself accidents and stifled innovation. Much of this can be explained by the fact that licensing increases costs. For example, higher costs lead to more do-it-yourself work, and that leads to more accidents.
• In the absence of licensing, people are not regularly subject to fraud and abuse as proponents of licensing would have you believe. Many Missourians hire from particular professions via recommendation from a trusted third party, like a friend or review website. If the worker does a poor job, he will stop being recommended and will receive poor reviews. As my colleague David Stokes said in his testimony (who was himself paraphrasing economist Adam Smith), in a competitive market, job performance and reputation put bread on a worker’s table, not a state license.

Ultimately, occupational licensing increases costs to consumers, limits competition, and hinders Missouri’s economy. Missouri has lost thousands of jobs and millions of dollars in output due to licensing requirements. During pandemic-related shutdowns, it is especially important to encourage entrepreneurship and remove regulatory barriers to work. Last year, Missouri took a huge step forward by allowing occupational licensing reciprocity and temporarily waiving some occupational licensing requirements. Let’s make sure that policymakers continue to move Missouri in the right direction.