In the Progressive Era of the United States (the late 1890s to the late 1910s), an increasing number of “barber’s itch” (a contagious skin infection spread by using unclean razors) outbreaks led to the creation of barber licensures to ensure the implementation of sanitation efforts to prevent the spread of this ailment. One health column from that time noted that “90 percent of the justification for licensure was Barber’s Itch.”

It didn’t take long for the justification for regulation to evolve as motivations became increasingly self-interested. Unionized barbers began advocating for regulations in order to bar discount barbers from driving down prices. Lobbying included restricting barbers from working on Sunday (which affected discount barbers who worked part-time on the weekends), not allowing some barbers to offer free shoeshines with their haircut, and unique to Missouri, requiring “conversational ability.”

Most of us enjoy a barber who can carry on a conversation, but is this something that needs to be regulated by the state? It seems silly, but we still see the remnants of this type of requirement today where barbers in training have to spend 10 hours on “professional image” and another 10 hours of training on “salesmanship and shop management.”

Though public safety and “barber’s itch” were the impetus for licensing barbers, today only 5.5 percent of the required 2,000 hours for the Missouri barber’s apprenticeship relate to sanitation and sterilization procedures.

The fact is licensing creates an incentive for incumbents in an industry to use these licenses to drive down the number of competitors. This is often known as regulatory capture.

Smith’s analysis found that occupational licensing led to a 45% increase in haircut prices and a 55% increase in shaving prices, but there was no evidence that barber’s itch declined. This aligns with a Florida State meta-analysis, which observes that only 16 percent of occupational licensing studies show a positive relationship between product quality and licensing.

Today we rarely worry about barber’s itch, yet we require even more laborious licensing requirements. Policymakers should review these requirements for all professions to ensure the licensure process is providing a legitimate, beneficial service and not just helping pad the wallets of those already in the profession.

The post A Cut Below: Lessons from the History of Barber Licensure appeared first on Show-Me Institute.

Missouri’s Cosmetology and Barber Licensing Board is designed to consist of 11 members (though there are only 9 currently): 7 members who hold either a cosmetology or barber license (only 5 currently), 2 members who own accredited cosmetology or barber schools, and 2 members of the public. With these numbers, this board is dominated by license holders, and they have the influence to make one of two things happen: They could relax regulations and make things easier for themselves as licensed workers, or they could make regulations stricter and make it harder for others to enter into the industry. More often, we see the latter occurring because license holders don’t want more licensed workers in the market—that’s just more people competing with them for customers. And stricter regulations can translate into fewer options and higher prices for consumers.

Of course, those in the industry have specific knowledge, which could be helpful in creating rules and regulations for a given industry. However, it’s difficult to reconcile this with the fact that those in the industry have direct self-interest in keeping the barriers to entry high.

If regulators are creating and enforcing regulations based on their interest and not the interest of the public, we have a problem. This isn’t to say that this is definitively happening with the Cosmetology and Barber Licensing Board, but the incentive is there. Occupational licensing puts a burden on workers and consumers, and if there are additional problems such as regulatory capture, Missourians may be burdened even more. It may be time to rethink some aspects of occupational licensing, such as the structure of the boards or if these occupations need to be licensed at all.

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Missouri, like all other states, requires teachers to pass a series of examinations before they can become a teacher. These tests act as a barrier to entry. As I have written before, barriers to entry are only effective if they do what they are supposed to do. In this case, the tests should keep out individuals who would be bad teachers. My research has shown that the relationship between performance on licensure exams and performance in the classroom is pretty weak. Despite this fact, Missouri’s Department of Elementary and Secondary education sees licensure exams as a key driver to improving the quality of the teacher labor force.

Education is not the only area in which tests are used to screen out candidates. For example, lawyers have to take the Missouri Bar Exam, which has three parts. Compare this to the sheer number of teacher licensure exams for those wanting to work in public schools (see below). Whether you are in bankruptcy law, civil rights law, criminal law, corporate law, family law, or any other field in the law profession, you take one exam—the bar exam. In education, however, we have constructed tests for just about every single thing.

Want to be a high school biology teacher? There is a test for that. Want to teach chemistry? There is a test for that. Want to teach earth science, general science, or physics? There is a test for each of those. Oh yeah, and you will also have to take a test of your disposition, the Missouri Educator Profile; a test of general knowledge, the Missouri General Education Assessment; and you’ll be evaluated in the classroom by the Missouri Performance Assessment.

It is understandable to want to ensure that prospective teachers have basic competencies. We will not change the quality of the labor force, however, unless we change the structure of the profession. We must begin rewarding great teachers and become more diligent on removing or remediating the bad ones. As it is, we’ve simply gone test crazy when it comes to teacher certification.

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My driver, Majid, was an English teacher in his home country. Majid moved to the United States for a better life and would like to begin teaching here. To do so, he has to obtain certification, which means he has to pass a licensure exam. Of course, to take the exam he has to pay for the exam. Majid recently took the necessary tests and passed the math exam but failed the language arts exam. He now has to pick up more Uber fares to pay for another test, which he may or may not pass.

Like the regulations that have blocked Uber from entering the market in many cities, licensure exams are a barrier to entry. Barriers to entry are not a problem if they perfectly block the people/problems that we don’t want in a profession. That is, if a barrier screened out every potentially bad teacher, it would be a good barrier. Unfortunately, licensure exams are very loosely related to teacher quality. This means many bad teachers pass the exam and become teachers, while individuals who may be great teachers fail the exam and do not enter the profession.

When we look at the success that Uber is having and how it is revolutionizing the industry, it is easy to see why we need to be wary of unnecessary regulations that have nothing to do with quality. Education would be wise to follow suit and remove unnecessary barriers to entry.

The post Uber, Education, and Barriers to Entry appeared first on Show-Me Institute.

This past week, when the St. Louis Metropolitan Taxicab Commission (MTC) unanimously approved Uber’s application to function as a third-party dispatcher for existing premium sedans, I was initially excited, figuring that cab services would be cheaper and easier to use. My excitement, however, was misguided, as the commission’s recent decision still puts the brakes on any meaningful competition that Uber and Lyft would provide.

The MTC, “in its continuing endeavor to provide safe, high quality taxi service to St. Louis,” has retained and added regulations that will prevent Uber or any other ridesharing company from offering anything but an expensive, premium service. Some examples of these regulations include:

• The price of a premium sedan must be greater than $33,000.
• The price of a premium SUV must be greater than $42,000.
• The vehicle cannot be more than six model years old while in service.
• For-hire services must have a non-residential business address.

It gets worse. Aside from controlling the downstream pricing of ridesharing services, the MTC still plans to tightly control the supply of premium sedans available to Uber through the issuance of permits. Initially, the MTC will only issue 26 permits for premium services, and only five will be rewarded to new, single-vehicle operators. The rest will go to existing sedan companies that can afford three or more sedans. These smoke and mirror tricks, designed to make it appear that the MTC is becoming friendlier to other services and companies, are in reality reinforcing the restrictions on the entry and pricing of the taxi market.

These arbitrary restrictions become even more evident when trying to order an Uber. When I attempted to order a car through the Uber app, the message appears that “no Black cars are available.” So even after the changes, trying to use Uber is just as difficult as when they were barred from entering the market. Clearly, the MTC’s decision is not doing anything to fulfill their duty of providing enough supply to meet the demand.

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Regulations that restrict market entry:

• Section 203: All For Hire Vehicle Owners require a Certificate of Convenience and Necessity (CCN) from the MTC. The MTC, staffed by taxi industry players, gets to decide if there is enough demand for more cabs. (The MTC has frozen CCN issuances for taxis until they finish a study on taxi demand, because apparently the job of the MTC should be to centrally plan taxi supply).
• 202: Transfer or sale of a CCN must be accompanied by a $2,500 application fee.
• 210: All CCNs must retain and maintain a non-residential office address with a business telephone number that is staffed 24 hours a day.
• 301: All for-hire vehicles require a permit (airport taxi, premium sedan, etc.). Vehicles can only receive one type of permit.
• 602: Taxis cannot be older than nine model years and premium sedans cannot be older than five model years. Taxis that are more than six model years cannot enter service and premium sedans more than two model years cannot enter service.
• 604: All new premium sedan CCNs require at least three sedans at the time of permit issuance.

Regulations that restrict competition:

• 501: Taxi meter rates are controlled.
• 301: For-hire vehicles can only receive one type of permit; hence, airport cabs cannot compete with normal taxis which cannot become premium sedans.
• 604: Premium sedans cannot be stationed within 2,500 feet of a hotel or business property.
• 604: Premium sedans must contract for passengers at least 60 minutes before pickup.

Regulations that are needless or simply ridiculous:

• 501: Taxis must have printed, in colors contrasting to that of the vehicle surface to which affixed, on the outside of one door, the name of the vehicle license holder in letters at least 2.5 inches high.
• 504: Drivers are required to wear a uniform of black slacks and a solid, button-up shirt.
• 701: All on-call taxicabs should arrive at a hotel with heat or air conditioning running, set between 65-75 degrees.
• 304: Vehicles cannot have spinning wheels or covers.
• 304: Bumper paint must match vehicle paint unless paint is not required, then it must be factory black.

You are free to believe these and many other MTC regulations have some tangential connection to keeping passengers safe. But the simplest explanation is that the purpose of these rules is the same as their result: to limit market entry and control competition. Equally simple is the method for improving taxi service in Saint Louis: shutting down the Metropolitan Taxicab Commission.

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I recently highlighted how government can get in the way of a person and her pizza slice. A couple of Show-Me Daily commenters said that the food truck wasn’t banned from Edwardsville — its operators simply failed to apply for a permit.

According to a Riverfront Times article about the incident:

Reached for comment, Pi co-owner Chris Sommers forwarded us along to Fond owner and chef Amy Zupanci, who’d invited the pizza truck to park outside her restaurant. In return for her Welcome Wagon treatment, Zupanci received a call from the health department yesterday, and an in-person visit from an Edwardsville police captain.

“The Madison County Health Department says they don’t allow trucks of any kind to serve food,” Zupanci writes in an e-mail. “However, they also have a policy of no inspection necessary as long as you have a health certificate for ‘non-consecutive food events.’ This would include festivals, farmers’ markets, etc., which may happen once a week, but not back-to-back days.”

Reasoning that under that definition the Pi truck is an “event,” Zupanci inquired about a so-called Transient Merchant permit but hit a dead end: The health department directed her to the police department, which informed her that permits involving food must be approved by…the health department.

This doesn’t tell us that the truck is de jure banned, but it can be interpreted as a de facto bureaucratic ban if public officials refuse to award the certificate required to conduct business.

Enforcing food safety is the ostensible goal of requiring permits. Nobody’s arguing against food safety — I’m certainly not. I’ve contracted food poisoning before, and I felt like I was going to die. I wouldn’t wish food poisoning on anyone — not even on a Keynesian.

However, excessive permit requirements can create a barrier to entry in the market, and keeping a number of competitors out of the market may be the unstated goal of the regulation. My friend and colleague Josh Smith explains the negative effects of this in a comment on my previous blog post:

When a local government requires some level of oversight for vendors, can it be called a “ban”? Perhaps not. If it is the case, however, that the Pi truck is not allowed to sell food in Edwardsville without the approval (through a form, or some other process) of the government, this constitutes an infringement on the right of the Pi truck to sell and the Edwardsville pizza customers to buy.

Even if this layer of bureaucracy seems small, it’s often small changes that have unfortunate marginal effects on markets. What seems like a simple matter to some may be not worth it to others.

Reputation capital can serve as an alternative (and perhaps more reliable) means of signaling quality and safety than a certificate from a local health board — a certificate that likely doesn’t signal much of anything in the way of rigorous investigation of potential health hazards. Dan Klein at the Cato Institute has published a good piece on the subject, “How Trust Is Achieved in Free Markets.”

The post Which Is Government Protecting: Consumers From Food Poisoning, or Existing Businesses From Competition? appeared first on Show-Me Institute.

From the article:

Under the proposed new law, rate hike cases could last no more than six months, meaning utilities could file two requests each year.

That’s not just two rate hike cases for each electric company, including AmerenUE. It also means extra rate cases for water companies, including Missouri American Water, which is seeking a 21 percent rate hike, and for gas companies, including Laclede Gas, which has a $52.6 million rate hike request before utility regulators.

Last year, when AmerenUE raised its rates by 8 percent after a 12.1-percent increase the previous year, the utility’s president justified it in order to continue “maintaining reliable electric service.” He also said:

“Much of the increase covers the costs of projects initiated to improve the reliability of our electric system, the costs of environmental and efficiency improvements at our generating plants, and the costs of fuel for those plants.”

It is hard to evaluate the validity of these claims without a field of competitors providing greater incentives for efficiency and cost reduction. That competition doesn’t exist, though, because utilities are generally viewed as a natural monopoly, an industry that requires economies of scale so large that it is most efficient to have a single supplier. As a result, municipalities generally restrict entry into utility markets. In The Concise Encyclopedia of Economics, economist David Henderson pointed out that this restriction is probably unnecessary:

Economists tend to oppose regulating entry. The reason is as follows: If the industry really is a natural monopoly, then preventing new competitors from entering is unnecessary because no competitor would want to enter anyway. If, on the other hand, the industry is not a natural monopoly, then preventing competition is undesirable. Either way, preventing entry does not make sense.

In “The Myth of the Natural Monopoly,” Loyola University economics professor Thomas J. DiLorenzo cited economist Walter J. Primeaux’s findings from more than 20 years of studying electrical utilities and competition:

• Contrary to natural monopoly theory, costs are actually lower where there are two firms operating;
• Contrary to natural monopoly theory, there is no more excess capacity under competition than under monopoly in the electric utility industry;
• The theory of natural monopoly fails on every count: competition exists, price wars are not “serious,” there is better consumer service and lower prices with competition, competition persists for very long periods of time, and consumers themselves prefer competition to regulated monopoly;

If a utility is providing the lowest price, a competitor’s challenge will not be a serious threat. Competition itself — or the potential for competition — can keep prices low. Regulatory boards, on the other hand, historically have not been successful in lowering prices, as DiLorenzo noted:

In one of the first statistical studies of the effects of rate regulation in the electric utilities industry, published in 1962, George Stigler and Claire Friedland found no significant differences in prices and profits of utilities with and without regulatory commissions from 1917 to 1932. Early rate regulators did not benefit the consumer, but were rather “captured” by the industry, as happened in so many other industries, from trucking to airlines to cable television.

If barriers to entry are low enough, the potential for competition can increase efficiency and cost reduction in existing utilities. Instead of a focus on how often a utility company can change its rates, Missouri residents would benefit more from lowered regulatory barriers to entry in utility markets. In that case, future rate increases — like the recent decision to increase rates by 3 percent in order to promote energy efficiency — will be weighed against the possibility of a competitor attracting market share through lower prices.

The post Monopolies Seek Further Rate Hike Legislation appeared first on Show-Me Institute.

This represents an unfortunate trend in public policy: to counteract the negative consequences of one policy, government officials propose another policy that further distorts the market, instead of repealing the first policy. It’s similar to the way in which the federal government subsidizes the production of corn, then proposes to tax products made with corn syrup. If New York City were serious about solving its budgetary problems, perhaps it would consider eliminating the 5-percent film tax credit that it offers to producers, instead of slapping fees on top of subsidies.

I have additional concerns about the policy. From the article:

“Everybody I’ve talked to about this—and I’ve called a number of producers—they couldn’t stop laughing because it’s $300 one time,” said Mr. Bloomberg. “They go anyplace else, they pay $1,000 every two weeks. And it’s such a small percentage of their budget.”

If a producer is in Bloomberg’s list of contacts, he has probably already experienced success in the film or television industry and has a large budget. I am skeptical that Bloomberg has any small-scale, independent filmmakers on speed-dial. Additionally, I’m not surprised at all that these large-scale producers would support an additional barrier to entry in the film industry — the fee positively affects them because it protects them from future competitors. This is a prime example of rent seeking.

Mayor Michael Bloomberg […] said the fee was too small to impact Hollywood business decisions.

Although $300 may not be significant to productions with large budgets, this fee could have a measurable effect on smaller, independent productions. Many of these producers will decide to move away from New York City as a result of this policy, and it’s possible that some of them may end up in Missouri. According to the Missouri Film Commission, Missouri does not require local film permits.

The post Two Market Distortions Do Not a Free Market Make appeared first on Show-Me Institute.

“No skills needed to be a tax preparer”

But it may be that the editors chose the title, so we can’t necessarily blame Gallagher for that.

Not surprisingly, current owners of tax preparations companies support the proposed nationwide licensing:

“It’s a great thing. It will hold accountability to tax preparers,” says Salah. “They’ll know what they’re doing. There are lots of tax preparers who are not qualified.”

Of course, it is always those who currently hold an occupation who support licensing that occupation, because it helps prevent future competition. The vast majority of licensing laws are enacted as a result of lobbying pressure from current practitioners of the occupation in question. Recent successful efforts to license interior designers and massage therapists in Missouri are examples of that phenomenon.

But at least Gallagher understands that these types of plans entail costs and harms that might not be obvious at first:

The story may be different for the bookkeeper-turned-homemaker who does tax returns on her (or his) dining room table. Some may find another way to earn money.

People who find themselves in a similar situation to this example should be allowed to do this type of work for as long as people voluntarily choose to hire them. If they do a poor job and their customers keep getting penalized as a result, people will stop hiring them. What’s more, just because you hire a tax preparer does not mean you don’t bear the responsibility of your return being accurate. I like the comment by the CPA at the end of the article:

“I am a retired CPA. It is amazing the number of people who could prepare their rather easy return choose not to. Usually their answer is I may make a mistake. The mistake that we have all made is electing people who have given us a tax law that is impossible to comply with. This is not a political statement but a fact.”

Well said.

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Mark Raab, acting president of the Missouri Association of Professional Archaeologists, said he’s thrilled students are getting exposure to archaeology, but adds that the question lies in whether it’s being done to the highest professional standard.

Of course, any work done by high school students is not going to meet the highest professional standard. They’ve only recently started working in the field.

As for the teacher’s credentials, these students are fortunate to have a teacher with any archaeological training; it’s unreasonable to insist that a high school teacher study archaeology full time for 12 months straight, as the federally funded archaeologists are required to do. This teacher worked on excavations over two summers, when school was out. And there’s no guarantee that he would make better decisions if he had more degrees.

If every high school dig had to meet the most exacting standards, high schoolers simply wouldn’t be able to experience archaeology.

There are some cases in which allowing a lower standard for educational purposes is inappropriate. For example, I argued that people should not be allowed to own dangerous wild animals, even though restricting wildlife ownership to zoos will mean that some people miss out on opportunities to learn to care for the animals. The danger to other people outweighs the potential educational benefits.

But, in the case of the high school archaeological dig, the only ones who stand to lose from suboptimal work are the property owners — and they’re OK with it. If they want to call in top archaeologists, that’s their prerogative. And, if they want to turn the dig over to a teacher and his students, they’re free to do that.

The article puts it this way:

There is no standard process to follow if a high school group wants to dig on private property.

That’s how it should be.

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