Licensed to Overcharge
Alan Kreuger writes about occupational licensing run amok, allowing incumbent license holders to restrict competition and overcharge their customers. Kreuger doesn't mention it, but there's also an international dimension to this. Hat tip: Tyler Cowen.
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This is one area where I'm with the conservatives (at least the libertarian conservatives). I don't, of course, agree with the extreme Milton Friedman position that no licensing is proper-- doctors and other professionals whose activities need careful regulation should be licensed. But I remember a nice op-ed by some Cato institute type several years ago about taxi medallions. He basically argued that anyone with proof of insurance and a reliable car should be allowed to operate a taxi. And it's true-- what should be a good entry level job for college students and the working poor is instead a government-enforced monopoly that leads to high fares and abominable service, especially in areas populated by racial minorities. And, of course, you create a class of people who will then lobby against increasing the competition.
There's a vast amount of licensing that is pure rent-seeking and bears little relationship to the protection of the public. Liberals are sometimes too suspicious of "freedom of contract" arguments (which have a nasty history in areas like child labor and minimum wage), but they have salience here.
March 2, 2006 11:13 AM | Reply | Permalink
I'm totally behind licensing of movie projectionists. I feel that 1 time out of 10, movie projection is painfully unwatchable, 1 time of 10 it's good, and the rest of the time, it's in a hazy state on not-quite-in-not-quite-out-of-focus.
March 2, 2006 11:16 AM | Reply | Permalink
That a particular occupation, like medicine, should be regulated to protect consumers, doesn't necessarily lead to supporting licensing (or related practices: did you know the AMA decides how many medical students can be admitted each year by each accredited US med school?). In fact, it may point in the opposite direction. Professional organizations might favor any given policy that benefits consumers, but only because it also benefits their membership: the consumer benefit is incidental. Look at where the AMA is on the tort reform issue, for example.
Which doesn't make licensing bad, I don't think. Protecting workers is a valid activity, whether the work is done in a factory or a taxi cab. But it's a mistake to expect it to work in favor of the public.
March 2, 2006 11:27 AM | Reply | Permalink
As an attorney, licensing of legal services benefits me greatly, as it inflates my paycheck beyond all reasonable expectations. Licensing does not much benefit people who need affordable legal services.
Much of what attorneys do could be done more cheaply by other corporations/organizations, or in some cases, literate citizens themselves. Especially now that most state and federal laws and regulations are available online for free.
In my pro bono experience assisting immigrants attain legal status, my clients have often been charged exorbitant amounts by private attorneys who didn't really do much for them. Marginalized groups in need of legal services (e.g. immigrants, low-income victims of corporate malfeasance or professional malpractice) often have no access to the legal system because they can't afford legal services.
The Economist had an article awhile back about how corporations are outsourcing low-level corporate legal work, such as preparing contracts and making filings, to lawyers in India who charge 1/3 of their US counterparts. These corporations have figured out the scam that is the legal profession. Why not give US citizens the same opportunities for cost savings by partially deregulating the profession?
Also, accountability to the public for attorneys is basically non-existent, since we regulate ourselves and write the rules of the legal system to benefit the profession. So more regulation of attorney conduct is in order. I don't know how you increase and decrease regulation at the same time with good results, but right now we have the worst of both worlds. (I see tps12 already partially answered my question.) Ok, back to billing …
March 2, 2006 12:33 PM | Reply | Permalink
As a victim of ever expanding CPA licensing requirements, I can so understand objection to modern guilds.
OTOH, I think shampooers, manicurists, etc. should be required to prove that they are in good health, specifically that they have no communicable disease issues and that they understand the importance of their role in public health. We have been so blessed for the past half century. We have not faced a serious public health threat because our predecessors did and took steps to prevent one. These included licensing service providers who can pass along germs in the course of their profession.
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I try my best to be just like I am but everybody wants me to be just like them. -- Bob Dylan
March 4, 2006 6:54 AM | Reply | Permalink
I bet an Indian economist could flatter millionaire, fat cat CEO's more than twice as sincerely as any American bozo. And they could probably do it for a third the price. Why not outsource economists!
I am a pharmacist. My own outrageous, license-enhanced salary adds maybe a couple dollars to the price of a prescription. Maybe a Filipino or Indian pharmacist would work for (say) 50 cents a script. That whopping $1.50 savings, multiplied by millions of prescirptions filled annually, adds up to billions of dollars worth of efficiency!
Of course, I'd be out a job, and you, the consumer, would never see the $1.50. But hey, Walgreens would save a bundle! That's exactly the point. Free trade is fantastic for shareholders, but consumers and workers are left holding the bag.
-- All successful revolutions are the kicking in of a rotten door. (John Kenneth Galbraith) --
March 4, 2006 10:28 AM | Reply | Permalink