I had a chance to speak at a meeting of the National League of Cities yesterday, and the audience was very receptive to the entrepreneurship message. One of the key things I recommend which cities can do to promote small and entrepreneurial firms is reconsider the economically unwise practice of licensing occupations. If there are any serious arguments on behalf of licensing, I'm not aware. Instead, you might hear superficial arguments about how licensing protects consumer safety, but is there any empirical data to support that? Does the low rate of licensing in Indiana make it a dangerous state? Hardly. Instead, most licensing represents regulatory capture, and often leads to less - not more - transparency among the licensed professionals, not to mention pushing the unlicensed actors underground or forcing poorer citizens to do things (electricity, plumbing) themselves.
A must-read article on this topic is a May 2009 article in Econ Journal Watch by Stephenson & Wendt. An instant classic.
- Occupational licenses affect 30 percent or more jobs in the U.S., but Indiana has them on just 11 percent of jobs.
- Wages rise in licensed occupations, but the number of jobs declines in that sector. This should surprise no one, because tighter regulations act as a supply restraint.
- Licenses may reduce inequality within a profession, but seem to increase it economywide. For example, licensing by dentsits and doctors appears to shift income to the top of those health pyramids and away from assistants and clinicians.