March 5, 2018

A Radical Solution to the Overuse of Occupational Licensing

Tyler Cowen

Holbert L. Harris Chair of Economics at George Mason University

Criticism of the proliferation of occupational licensing is now bipartisan. Occupations such as dog walkers, interior designers, auctioneers and barbers do not need state licenses, and those legal restrictions serve mainly to raise prices for consumers and restrict supply, eventually limiting innovation and job creation, too.

But how to move forward? There are thousands of licenses, covering almost a third of U.S. workers, and licenses are proliferating at the city and county levels, too. Constitutional and antitrust and legal challenges to this trend are beneficial, but they bring only piecemeal victories and cannot undo the current morass of restrictions.

Maybe a court will strike down New York’s licenses for dog-walking, but in the meantime Seattle and other municipalities might license dog walkers. The machinery for creating new licenses is much better organized and funded than the institutions for getting rid of them, and once in place these requirements have natural defenders, namely those who have invested in the credentials.

My radical proposal is therefore for the federal government to preempt as much occupational licensing as is possible. That’s right, these functions would be taken away from the state and local governments.

Unfortunately, I don’t expect the federal bureaucracy to usher in the reign of Milton Friedman’s Chicago School economics. But the federal regulatory process would likely pay less heed to local special interests, and it would produce a more homogenized and less idiosyncratic body of regulatory law more geared toward the most important cases, such as medicine and child care. The federal government is less likely than many state and local governments to obsess over licensing rules for fortune tellers, florists and athletic trainers.

A federal approach to these regulations would also bring standardization and uniformity across state lines, making it easier to move from one part of the country to another, and helping restore the great American tradition of mobility. As it stands now, imagine yours is a military family and you are transferred every few years or so, and your spouse works in a profession that would require relicensing. What justification could there be for such a hardship and inconvenience?

In short, the federalization of licensing would lower prices for consumers, create more jobs, and bring a net increase in economic liberty.

To be clear, I would prefer it if the state and local governments dismantled their excess occupational licensing on their own. But that does not seem to be in the cards. And these days we have a deregulation-leaning federal government, and a fair amount of willingness to think outside the box, so let’s put that to good use. National preemption could clear away state and local licensing, or at least significant parts of it, in one fell swoop.

Federalizing occupational licensing would be legally tricky. For instance, the 1889 Supreme Court case Dent v. West Virginia established the right of the states to require medical licenses. So under one view, we might need this and other court decisions to be modified, perhaps on the grounds that much licensing legislation exists to restrict competition and perhaps violates principles of equal protection and non-discrimination. Still, we do now have a Supreme Court that places some value on economic liberty.

Possibly congressional action could be taken too. For instance, the National Labor Relations Act of 1935 preempts the ability of the states to regulate labor unions, and Congress could pass something analogous to establish control over many parts of occupational licensing.

If need be, Congress could keep regulatory authority with the states in areas where differences in local conditions matter for determining the best laws. But is there really a sound reason why one city or state should license makeup artists and massage therapists but another should not?

Defenders of American federalism may be loath to take such steps, and I share some of their concerns, based on a fear of centralized power. But are state and local governments, in this capacity, truly representing the interests of the governed or are their actions reflecting valuable local information? Are competitive pressures really checking their ability to stick with bad, wealth-destroying policies? Or rather have political technologies evolved in such a way that those governments are being systematically captured by special-interest groups for the purposes of income protection?

If my idea sounds too ambitious, a smaller first step against anti-competitive licensing would have state governments preempt requirements at the city level, as Tennessee did last year. That doesn’t raise major constitutional issues, and at least it limits the possibility that American cities become a crazy patchwork of mobility-limiting interventions.

Keep in mind that the alternative to my suggestion is not the status quo but rather a regime where occupational licensing becomes progressively worse at multiple levels of government. The defense of liberty requires changes, and sometimes that means recognizing that small, local governments are infringing upon our rights rather than protecting them.