V. Costs and Benefits of Occupational Licensing

A. Economic Costs

A growing body of economic research indicates that stricter occupational licensing generates a number of economic costs. The first, and most readily apparent, consists of increases in consumer prices. In two widely cited examples — those of nurse practitioners and dental hygienists — marginally more restrictive licensing raises consumer prices by around 3 to 16 percent.79 The logic behind this is straightforward: when entry into a profession is limited, the remaining incumbent workers can charge a premium for their services.

The second type of cost consists of reduced access to employment. Some workers will manage to pay the sizeable but needless cost in time and money of obtaining a license, but others will not. In some cases, workers are categorically barred from receiving a license for reasons that do not withstand scrutiny, as with applicants whose criminal record is irrelevant to the particular profession, but nonetheless constitutes a bar to licensure.

Barriers to entry for workers tend to raise wages for those who successfully obtain a license (whether by paying the upfront costs or being grandfathered into the profession) and lower wages for those who are excluded. Estimates of the wage impact of licensing vary between about 5 and 15 percent, depending on the dataset and the method used to render licensed and unlicensed workers comparable.80 Estimates also differ by occupation, which is unsurprising given that the burden of licensing restrictions varies greatly across occupations.81

Importantly, the workers most harmed by licensure are likely not the same as those who manage to obtain it. For example, tighter licensing restrictions for teachers appear to have reduced the number of Hispanic teachers (incidentally, without raising quality of instruction).82 Similarly, in states that regulate interior design there is evidence that blacks, Hispanics, and older workers seeking to switch careers later in life are disproportionately excluded from the field.83 The same is true of African hair braiding, where there appears to be a direct relationship between the amount of training required (if any) and the number of providers working in the field.84 Thus, workers who would have more difficulty paying the opportunity cost of licensure are simply less likely to successfully navigate the system, reducing their access to ladders of economic opportunity.

Reduced access to employment can take a number of different forms. One is a consequence of the state-based licensure system, combined with a general lack of interstate reciprocity in licensure. When individuals incur considerable costs in time and money to obtain licenses in a particular state, they will be disinclined to duplicate their efforts, even when the market (and consumers) would be better served by their practicing in multiple states. This is most obviously a problem when it comes to interstate migration, which is demonstrably lower for licensed workers relative to comparable workers with certificates and those without licenses.85

B. Impact on Innovation

As the Federal Trade Commission recently noted in a study of the “sharing” economy, “[i]n our competitive economy, innovation is a major driver of long-term consumer welfare gains.”86 But what benefits consumers can threaten existing businesses that may seek to make up for their lack of innovation through the exercise of raw political power. Giving incumbent firms the ability to saddle would be competitors with onerous and often outdated licensing requirements presents a serious threat to innovation across a wide array of vocations, including medicine, law, education, and transportation.87 Of course, the failure of new products, services, or technologies to emerge due to occupational overregulation is impossible to fully document or calculate. That said, both common sense and abundant anecdotal evidence suggest that the effects of “occupational license run wild” on innovation are substantial.

Consider two examples from the medical field. First is the ability to remotely diagnose and treat patients, broadly referred to as “telemedicine.” Whether this means having the x-ray or MRI of a late-night emergency-room patient interpreted immediately by a radiologist in another jurisdiction — perhaps even on the other side of the world where it is the middle of the workday — or enabling a rural patient to be “seen” by a doctor on video instead of driving hundreds of miles for an in-person consultation, telemedicine promises to bring more services more quickly to more people at a lower cost than the traditional in-person model. But not everyone has embraced this innovation, and indeed, the Texas medical board amended its rules to require face-to-face consultation in a transparent attempt to disrupt the business model of Teladoc, Inc.,88 a company whose motto is “[s]peak to a licensed doctor by web, phone, or mobile app in under 10 minutes.”89 Teladoc has challenged that rule change in court, and the case remains pending at the time of this writing.

A particularly poignant example of rigid licensing policies stifling innovation in the medical field is a nonprofit called Remote Area Medical that puts on free medical clinics for low-income people, especially in rural areas. Remote Area Medical (or “RAM”) has been featured in dozens of media outlets, including The New York Times, CNN, and 60 Minutes.90 Despite its extraordinary track record providing desperately needed care to thousands of patients, RAM has experienced significant difficulty staffing its free medical clinics because it depends on volunteer doctors, dentists, nurses, and other health-care providers, many of whom reside outside the state where the clinic is being held and are not licensed in that jurisdiction. Some states, including RAM’s home state of Tennessee, have been quick to accommodate — including passing special legislation to exempt RAM volunteers from applicable licensing requirements — while other states have not.

Law is another field in which hidebound resistance to innovation is both common and costly. Among other things, lawyer-licensing laws help perpetuate the one-size-fits-all approach to legal education that saddles aspiring lawyers with increasingly large student debts while leaving many unequipped for the real-world practice of law. State-by-state licensing also makes it difficult for lawyers to serve businesses and other clients with legal needs in different jurisdictions since most lawyers are licensed in just one state. Meanwhile, ethics rules prohibit lawyers from practicing in firms that are owned by non-lawyers, which does much to shield law firms from competition from, for example, large accounting firms. And perhaps most importantly, the difficulty of defining just what constitutes the “practice of law” has made it difficult for non-lawyer providers, such as Nolo,91 to determine with confidence precisely which services they may provide — such as do-it-yourself wills and business incorporation kits — and which ones remain the exclusive (and often expensive) purview of state-licensed lawyers.92

It is impossible to quantify the cost to society of new products that never come to market, better services that consumers don’t get to enjoy, or the perpetuation of inefficient business models like taxi cabs or telephone monopolies who owe their existence to misguided regulations. But, the cost appears substantial.

C. Human Costs of Licensing

When considering the empirical costs and benefits of particular policies, it can be easy to lose sight of the effect those policies have on the lives of actual people. Below is just a small sample of specific instances in which excessive occupational licensing has negatively impacted workers, entrepreneurs, and consumers.

Sandy Meadows versus the Louisiana Horticulture Commission

As noted above, Louisiana is the only state in the country that licenses florists. And while that may seem comical at first, preventing people whose only vocational skill is creating attractive flower designs from using that ability to support themselves is no laughing matter. Sandy Meadows found that out when agents of the Louisiana Horticulture Commission stopped by the Albertson’s grocery store where she was running the floral department without a license and warned management that unless they hired a state-licensed florist, the store would be fined and prohibited from selling any more floral arrangements. The store only needed one florist and had no choice but to let Sandy go.

It’s not that she didn’t know about the florist licensing or couldn’t be bothered to get a license. On the contrary, Sandy took the licensing exam five times but flunked it every time. Was it because she was just a bad florist who had no business in the trade? Hardly. Instead, the problem was the state’s licensing exam, the practical portion of which required applicants to create four floral arrangements in four hours that would then be judged by a panel of working florists brought in by the state to judge the work of would-be competitors. These private-sector judges were hard on applicants, and the exam had a pass rate of less than 40 percent in the ten years preceding a legal challenge to the law in 2003.

The state defended the law both as a means to protect consumers from substandard floral arrangements and also as a public-safety measure protecting florists and customers alike from the alleged physical dangers of unlicensed floristry. Despite the fact that both concerns are meritless — there has of course been no rash of flower-related injuries for subpar flower arranging in the 49 states that do not license florists — a federal judge upheld Louisiana’s florist licensing law.

As for Sandy Meadows, Louisiana’s florist licensing law is a moot point. Shortly after losing her job managing Albertson’s floral department at the behest of the Louisiana Horticulture Commission, Sandy died alone, unemployed, and in poverty.93

Flytenow versus the Federal Aviation Administration

Innovative technologies that connect service providers directly to consumers are changing the way people live, work, and travel. From Uber and Lyft in the transportation industry to Airbnb in the hospitality industry, people are using the power of technology to connect with one another and trade goods and services in a way that has historically been neither feasible nor cost-effective. In the process, consumers are getting access to desired services at lower costs and pioneering businesses and service providers are reaching markets they would not otherwise. But at the same time, government regulators are applying licensing requirements to shut down some of these new, innovative businesses.

Flytenow, Inc. — a ride-sharing service for the skies — is one of these innovative businesses. Its business model is based on a common and long-standing practice among private pilots — sharing expenses with their passengers to make flights on small aircraft more accessible and cost-effective. Expense-sharing for the cost of flights has been common since the earliest days of aviation, and it has been expressly approved by the FAA. Specifically, under long-standing FAA rules, private pilots and passengers may each pay an equal share of gasoline costs, fees, and other expenses so long as they are traveling to the same location for independent purposes. Pilots would traditionally find passengers by calling or e-mailing friends, relying on word of mouth, or posting flight information on airport bulletin boards.

However, the FAA told Flytenow and its members that private pilots and passengers cannot share expenses if they communicate with one another using the Internet. According to the FAA, sharing expenses by posting a note on an airport bulletin board is permissible, but sharing expenses by posting travel plans on the Internet is not. If private pilots flying four-passenger Cessnas do the latter, they must have the same licensing credentials as pilots of commercial jetliners.

Flytenow pursued a court challenge to the FAA’s crackdown on flight-sharing arranged via the Internet instead of physical bulletin boards. The D.C. Circuit rejected that challenge, and the Supreme Court recently declined to hear the case.

Just as many jurisdictions have sought to do with Uber, Lyft, and other innovative surface transportation options, the FAA has deprived travelers throughout the country of a unique, convenient, and inexpensive travel option by adopting an arbitrary and incongruent licensing scheme.94

Lauren Boice versus the Arizona Board of Cosmetology

Lauren Boice is a cancer survivor who, while undergoing chemotherapy treatment, was unable to leave her house for many basic activities, including cosmetology services. Fortunately, Lauren won her battle with cancer and, like all successful entrepreneurs, saw a demand in the market. So, she opened Angels on Earth. Lauren’s business was to dispatch licensed cosmetologists to customers who were homebound because of immobilizing illnesses.

Even though Lauren did not cut anyone’s hair or do anyone’s makeup, the Arizona Board of Cosmetology told Lauren that she needed a salon license to operate her business. While the Board might have an interest in clean and safe salons, this regulation made no sense because Lauren did not operate a salon — she merely dispatched service providers who were already licensed by the state. In other words, the government’s restriction — requiring Lauren to get a salon license — did not match the government’s purported interest in clean salons because Lauren did not operate a salon.

Fortunately for Lauren, the Board eventually backed down — but only after Lauren waged a 16-month court battle against it with pro bono legal representation by the Goldwater Institute.95

Joba Niang versus the Missouri Board of Cosmetology and Barber Examiners

Natural hair braiding is a beauty practice popular among many African, African-American, and immigrant communities in the United States. Braiding is a very safe practice because braiders do not cut hair or use any dangerous chemicals, dyes, or coloring agents. Yet, in fourteen states braiders cannot legally work unless they become licensed cosmetologists. Missouri is one such state. It requires braiders to take at least 1,500 hours of prescribed training in a licensed cosmetology school and to pass both a written and a practical exam. Cosmetology schools do not teach natural hair braiding, and the licensing examinations do not test it. Missouri thus requires braiders to get a cosmetology license by taking 1,500 hours of instruction — which can cost tens of thousands of dollars — none of which actually teaches how to braid hair.

For Joba Niang, a highly skilled natural hair braider in St. Louis, Missouri’s licensing scheme poses a threat to her business and livelihood. Originally from Senegal, she emigrated from France in 1998 to pursue the American Dream. Growing up, she had learned to braid hair for her family and friends. Upon arriving in St. Louis, she realized that she could use her braiding skills to help support her growing family. For the past 16 years, Joba has successfully operated her own business, providing critical financial stability for her family.

But Missouri’s Cosmetology Board’s enforcement of cosmetology regulations against natural hair braiders has caused Joba to live in constant fear that the Cosmetology Board will shut her business down. She could not afford to spend 1,500 hours and tens of thousands of dollars to comply with Missouri’s cosmetology training requirements, particularly when that training is irrelevant to natural hair braiding.

Along with another natural hair braider, Tameka Stigers, Niang joined with the Institute for Justice to file a lawsuit in federal court arguing that Missouri’s cosmetology laws, as applied to hair braiders, are arbitrary and irrational restrictions that violate their right to earn an honest living under the Due Process, Equal Protection and Privileges or Immunities Clauses of the Constitution. After a loss at the trial court, their case is pending on appeal.

Meanwhile, reform efforts at the state legislature have hit a dead end. Although legislation that would have removed natural hair braiding from cosmetology licensing cleared the House, it never received a vote in the Senate. Dan Alban, the Institute for Justice’s lead attorney on Niang’s and Stigers’ legal case, was told by sources in the state Capitol that “‘money talks in Jefferson City’ and that bills were less likely to be approved if they didn’t have paid lobbyists going office to office to advocate for the bill.”96

Christina Collins versus the Georgia Dental Board

In 2011, Christina Collins had a successful teeth whitening business in Savannah, Georgia. At her retail location, she sold over-the-counter whitening products and instructed her customers on how to apply those products to their own teeth in a clean, comfortable setting. But as her business grew, it attracted attention from the Georgia Dental Board, which accused her of engaging in the unlawful practice of dentistry. The Board told her to shut down her business or face thousands of dollars in fines and years in jail. As a result, Christina closed her business.

Christina was selling the same products that are perfectly legal to purchase in stores and online, and that people use every day at home. Just as people apply those products to their own teeth at home, they did the same at Christina’s business; Christina’s standard practice, as is typically the case with teeth whitening businesses, was to require that customers apply the products to their teeth. Thus, the only difference between a customer applying teeth-whitening products at home and at Christina’s business was the setting in which that application occurred. But it is only the latter that the Georgia Dental Board treats as the unlawful practice of dentistry under the state’s Dental Practice Act.

In 2014, Christina sued the dental board in federal court, alleging that applying the Dental Practice Act to teeth whiteners like hers was unconstitutional because it drew an irrational distinction between customers whitening their teeth at her business and whitening their teeth at home. She alleged that instead of trying to promote public health and safety, the Dental Board was attempting to insulate dentists from competition from teeth whitening business, which charge much less — often 25 per cent less — than what a dentist would charge.

Teeth whitening is a significant source of revenue for dentists. Across the country, dentists push for laws and regulations that shut down their lower-cost teeth-whitening competitors. According to a 2014 report by the Institute for Justice, since 2005, 14 states have changed their laws or regulations to exclude all but licensed dentists, hygienists, or dental assistants from offering teeth-whitening services. And, at least 25 state dental boards have ordered teeth-whitening businesses to shut down.

In Georgia, Christina lost her lawsuit, and her business remains shuttered. Dentists in Georgia have successfully secured government protection of a major revenue source that was threatened by competition.97

D. Lack of Demonstrable Benefits

Occupational licensing stakeholders generally agree — at least in principle — that serious threats to public health and safety are the justification for licensing. Of course, substantial disagreement exists over what constitutes a serious threat to public health and safety, whether the regulatory instrument of licensing is required to address potential threats, and how burdensome licensing requirements must be to ensure health and safety.

Evidence on these considerations will necessarily be somewhat limited. For instance, researchers will typically be unable to evaluate the relative performance of licensing and some hypothetical regulatory intervention, but will be forced to compare actually existing rules that exist across states and time. In particular, when data exists for only a limited range of policy variations, drawing firm conclusions is difficult or impossible.

Take physician licensure, which is now universal throughout the states. It is likely not possible to estimate its contemporary public health and safety benefits, as there is no opportunity to observe comparable places without physician licensure. To the extent that the details of physician licensure vary across time and states, it may be possible to measure the impacts of changes in those details, but this is not informative about the benefits of licensure overall.

From a research perspective, however, it is a strong advantage that licensure in many occupations has been so irregularly implemented across the states. These differences in licensure status facilitate study of the effects of the institution, generating more information than would be available if licensing were a national policy. As documented in Part III above, even for universally licensed occupations, some of the details of implementation are quite important and variation in those details has facilitated valuable research.

What rigorous, systematic evidence do we have on the public health and safety impacts of licensing? A handful of studies have examined these effects, along with quality impacts (i.e., evaluating whether licensed practitioners provide higher-quality services), in occupations ranging from teaching to dentistry. In general, these studies have found no evidence of licensure benefits to service quality, let alone health and safety.

For example, Angrist and Guryan (2007) observed no improvement in teacher quality from more restrictive testing requirements imposed as part of teacher licensure.98 They did, however, estimate increases in wages associated with the more stringent licensure, as would be expected if the stricter rules amounted to a higher barrier to entry. In addition, the number of Hispanic teachers was substantially reduced. In a very different setting, Kleiner and Kudrle (2000) found that stricter dental licensure had no impact on the quality of dental services provided. As with teacher licensure, however, it did raise practitioner wages; additionally, the authors observed increases in the prices faced by patients.99

One area of particular importance is that of scope of practice for medical professionals. States vary in how freely non-physicians and non-dentists are legally permitted to operate; for example, some states allow nurse practitioners to work autonomously and some require them to work under the supervision of a physician. One review100 of the literature that compares patient outcomes for physicians and nurse practitioners found that results were at least as favorable for nurse practitioners, suggesting that incremental loosening of scope of practice restrictions would not cause deterioration in public health.

The Institute for Justice conducted a study of the possible benefits of licensing tour guides, which a number of U.S. tourist destinations do, including New York City, New Orleans, and Charleston, South Carolina. Washington, D.C., also licensed tour guides until 2014, when the law was struck down in federal court,101 thus creating the opportunity for an empirical “before and after” analysis. The study concluded that Washington, D.C.’s licensing regime did nothing to improve the quality of tour guides and served only to raise barriers to entry into the D.C. tour-guide market.102

An Obama White House report on occupational licensure contains additional detail on the relevant studies, only a small number of which find any quality impacts, and none of which imply serious, credible risks to public health and safety from less restrictive occupational licensure.103

Importantly for purposes of this paper, which seeks to challenge not the practice of occupational licensing itself but rather the overzealous mindset we call “occupational licensing run wild,” the available evidence does not support abandoning occupational licensing wholesale, including even the de-licensing of physicians. This is emphasized by a recent study that examined licensing of midwives in the first half of the 20th century. The studies previously mentioned considered incremental policy differences that feature in contemporary discussions of the appropriate degree of licensing. By contrast, Anderson et al. (2016) found that the introduction of medical licensing — in this case, that of midwives — was associated with significant improvements in public health.104

As the study of licensing progresses, researchers will learn more about the quality and safety effects of licensing rules, permitting an even more informed policy discussion. Developing new sources of administrative data on health and other outcomes, combined with a detailed accounting of changes in state licensure restrictions over time, will be critical to achieving this progress.