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The public policy blog of the American Enterprise Institute
One way government stymies entrepreneurs, particularly low-income ones, is through illogical and burdensome occupancy licensing laws. These laws and regulations are more about limiting labor supply and competition than ensuring the public’s health and safety. Cronyism meets cartelism.
As documented by the Institute of Justice, an emergency medical technician is required to get an average of 33 days of training. Yet in a 2012 analysis of license requirements for more than 100 low- and moderate-income occupations across America, IJ found 66 jobs with greater average licensure burdens than EMTs, including interior designers, barbers, cosmetologists, and manicurists. The average cosmetologist, for instance, spends 372 days in training.
These requirements to spend months in education or training, take exams, and pay fees make it “harder for people to find jobs and build new businesses that create jobs, particularly minorities, those of lesser means and those with less education.”
In a piece over at Vox, Evan Soltas, working off research by Alan Krueger and Morris Kleiner, notes that 30% of US workers are now covered by licensing schemes. As union membership has gone down, licensing has increased — with an interesting effect on inequality:
Connecting the stories of unions and licensing makes sense. Both are institutions workers created to raise wages — and occupational licensing seems about as effective as unions, raising wages by about 15 percent relative to what similarly-skilled workers earn in states where they’re not protected by licensing from competition.
Yet there’s something unions did that occupational licensing doesn’t, and that’s reduce inequality, Kleiner and Krueger find. Whereas unions tend to push up wages at the bottom and restrain them at the top, compressing the wage distribution, there’s no such effect for occupational licensing. Wage dispersion within a given trade is not effected by licensing.
In other words, the most successful workers will find that occupational licensing recreate the wage gains that unions once provided. But licensing seems to do little to help the bargaining power of the most vulnerable workers.
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