Living Economics

Licensed to Kill?
One-size-fits-all occupational licensing often makes entry difficult for the less educated and basic services too expensive for low-income consumers.

A path-breaking study found that licensing of electricians was significantly related across all 50 states to the rate of death from accidental electrocutions. Seven states with the strictest licensing requirements have up to 10 times more accidental electrocutions than the national average.

In other words, since licensing restricts the number of people practicing a given occupation, it may create a shortage of that particular service, raising prices and decreasing availability. The accidental electrocutions were apparently related to consumers trying to do work themselves instead of hiring an expensive, licensed professional. The same study indicates consumer sales of plumbing supplies were higher in states with stringent building contractor requirements.

Economist Milton Friedman is quite clear in his stance against medical licensing. He argues that the various restrictions to the entry of medical practice decrease the availability of medical services and encourage the use of unproven medical techniques such as faith healers or folk remedies.

The problems generated by licensing requirements might be decreased by implementing graded licenses. A good example of this system is drivers' licenses. Most drivers only need to be qualified to operate small passenger vehicles, not tractor/trailer trucks, buses or other more difficult to drive vehicles. Driver licensing regulations recognize various needs and qualifications by providing restricted licenses to beginners, typical passenger class licenses to average drivers and large vehicle licenses to drivers with advanced training. Consequently almost everyone can enjoy the benefits of motor travel while drivers are only allowed to operate vehicles that they are qualified to drive.

Likewise the licensure system for electricians could also have various grades. A basic license would allow an electrician to do simple jobs like installing a light switch or replacing some wiring. After he gains more experience he could complete a more advanced certification program that would qualify him to tackle tougher tasks such as wiring a new house.

Improved licensure regulations should help increase the supply of services, especially for simple tasks. Consumers could then avoid paying fifty dollars for a plumber to replace a broken washer. With the less experienced contractors taking care of the simple problems, the experts will have more time to work on the very difficult jobs.

Note:
  1. Update (8/1/2014): In 1950s, less than 5% of the US workers required state licenses; in 2014, 35% do. The requirement of a license raises an occupation's wages by 18% (Economist. 7/5/2014. "Red tape blues").
  2. Update (8/1/2014): In 1950s, less than 5% of the US workers required state licenses; in 2014, 35% do. The requirement of a license raises an occupation's wages by 18% (Economist. 7/5/2014. "Red tape blues").
References:
  • Business Week. "How licensing hurts consumers." 11/28/1977.
  • Carroll, S. L. and J. G. Robert "Occupational restrictions and the quality of service received: Some evidence," Southern Economic Journal, 1981.
  • Friedman, Milton. "Medical Licensure." Capitalism and Freedom. 1962.
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