SOME rush to blame free markets for America’s income inequality and its lack of social mobility. Among rich Western countries, America is where the top 1% of earners have become most detached from their compatriots. Yet those who blame this on unfettered competition or globalism run wild in the home of capitalism ignore an awkward fact. Far from being laissez-faire, America’s labour markets are grossly over-regulated by state governments. The resulting lack of competition drives up earnings—especially for the most exclusive professions, including medicine and the law. That is a tax on everyone else. Fully 22% of American workers must hold licences simply to do their jobs, up from just 5% in 1950. Bartenders must have licences in 13 states; manicurists are licensed everywhere but Connecticut. Louisiana licenses florists.

Licences make it harder to enter a profession. Not everyone can afford to pay a registration fee or take time to study for an exam before being allowed to pull pints or paint nails. The beneficiaries from such barriers to entry are incumbent workers, whose wages rise when competition is chilled.

For unskilled workers this rise is only 4-5%. By contrast, licensing raises the incomes of the highest earners by as much as a quarter (see article). Doctors, dentists and lawyers all benefit from rules preventing lower-skilled competitors from providing even basic services.

These rules are promulgated in the name of consumer protection. But tasks like issuing some prescriptions or drafting routine legal documents rarely require years of expensive postgraduate education. They may even be done better by a specialist who has fewer formal qualifications. The evidence from states where highly trained nurses can operate freely suggests that they provide just as good primary care as doctors do. Yet more than half of states restrict their practice, often requiring them to operate under supervision from doctors, who, naturally, charge a hefty fee for the privilege.

Some labour-market regulation makes sense. When buyers cannot easily judge quality, the state may need to step in. But there are pitfalls. Because lawmakers also lack the expertise to judge who can safely perform, say, a dental procedure, they often ask professions to regulate themselves. Inevitably, state bar associations charged with deciding what tasks should count as “practising law” tend to shut out non-lawyers.

There are better ways to help consumers. The government can issue qualifications and titles—“accredited interior designer”, say—but leave consumers to decide whether such diplomas are a valuable signal of quality. This works well in finance, where many optional qualifications are available (think “chartered financial analyst”).

Or the government can use inspections instead of licences. Which is better: requiring cooks and waiters to take a government-designed training course, or once in a while checking that restaurants are clean? Inspections can tie in with credentials, as when restaurants receive health-and-safety certificates to display to customers.

Market forces are often best of all, in spite of information asymmetries. Brain surgery may be complex, but it is unlicensed, beyond the need for surgeons to have medical degrees. In Britain anyone can provide legal advice outside the courtroom. People tend to make better choices for themselves than governments, more so in a world of online reviews and price-comparison websites. The state should favour the flow of information by requiring transparent contracts. If buyers are exploited, they should have recourse through the courts.

Bring down the bar

Milton Friedman said that you can tell who benefits from licensing by watching who lobbies for it—and rarely is that consumers. Letting professions wield the power of government against potential competitors is foolish and costly. When licensing is inevitable, regulators should aim to promote competition as well as protect consumers. Licensing run amok not only poisons markets, it also poisons sentiment towards markets that misfire. States should sweep away the rules, so that America really can be the home of free markets.