Occupational Licensing: Reality Differs From Rhetoric

Occupational licensing is the legal prohibition on anyone without a government-issued license practicing a trade. Such regulation is believed to be necessary to prevent consumers from being harmed by shady or incompetent service providers.

As with most government actions, the reality differs from the rhetoric.

The first hint that the real goal of occupational licensing isn't to protect consumers' health and welfare is that far too many of the professions that are licensed pose practically zero risks to ordinary people. Among the professions that are licensed in various U.S. states are florists, hair braiders and casket sellers. What are the chances that consumers will be wounded by poorly arranged bouquets of flowers or that corpses will be made more dead by defective caskets?

The real goal of occupational licensing is to protect not consumers, but incumbent suppliers. Most occupational-licensing schemes require entrants into a trade to pass exams — exams designed and graded by representatives of incumbent suppliers.

To see the folly of such schemes, ask yourself: If no new restaurant could enter the fast-food industry unless it first got the approval of McDonald's and Burger King, how many new fast-food restaurants would you expect to see? And with incumbent restaurants exercising government-granted power to exclude new rivals, what do you predict would happen to the price of a Big Mac or to the quality of a Whopper?

But what about more “significant” professions, such as doctors and lawyers?

The case for licensing these professions is no stronger than is the case for licensing florists and hair braiders. The reasons are many. Here are just two.

First, precisely because medical care and legal counsel are especially important services, it's especially important that competition to supply these services be as intense as possible. If the price of flowers is unnecessarily high or the quality poor, that's unfortunate but hardly tragic. Not so for the prices and quality of the services of doctors and lawyers.

Too high a price for medical visits will cause too many people to resort to self-diagnosis and self-medication. Too high a price for legal services will cause too many people to write their own wills or negotiate their own divorce settlements. Getting matters wrong on these fronts can be quite serious.

Won't, though, the absence of licensing allow large numbers of unqualified doctors and lawyers to practice? No.

People are not generally stupid when spending their own money on themselves and their loved ones. Without government licensing, people will demand — and other people will supply — information on different physicians and attorneys. Websites and smartphone apps will be created that, for a small fee, collect and distribute unbiased information on doctors and lawyers. People in need of medical care or legal advice will be free to consult this information and to use it as they, rather than some distant bureaucrat, choose.

And competition among physicians and lawyers — made more intense by the absence of government licensing — will drive these professionals to offer high-quality services at affordable prices.

The same open competition that leads supermarkets, restaurants, dry cleaners and department stores to constantly improve their offerings and lower their prices will do the same for all those occupations that are now licensed by government.