A few years ago, a small group of Minnesotans walked the halls of the state Capitol asking for something unusual: They wanted to be regulated. The three music therapists were asking elected officials to create a new occupational license that would make it illegal for individuals to practice “music therapy” without government-issued license.
Their pitch to legislators made it sound like an innocuous request. They wanted to differentiate themselves from other “non-music therapy musicians in health care.” The proposed license would represent only “minimal government involvement” and be budget neutral.
Yet a government-mandated occupational license is far from minimal for those who want the freedom to provide those services without first having to ask the government’s permission. In fact, practicing a licensed occupation without government approval sometimes leads to criminal charges. Of the many ways an occupation can be regulated, licensing is the most restrictive.
And while application fees may make licensing schemes “budget neutral” for the government, such schemes have high costs for job-seekers, consumers and the economy. Now, thanks to a new report from the Institute for Justice, University of Minnesota economics professor Dr. Morris Kleiner and economist Dr. Evgeny Vorotnikov, those costs have been quantified both nationally and in 36 separate states.
In the 1950s, only about 1 in 20 Americans needed a license to legally work. The new report shows that this rate has climbed to nearly 1 in 5. In Minnesota, the music therapists wanted to add themselves to the 22 percent of workers in their state who have to be licensed.
The new report confirms the simple economic theory that restricting the supply of workers in certain occupations has costs. While licensed workers gain huge benefits from imposing these government-imposed bottlenecks, the costs for job-seekers, consumers and the wider economy are great.
Nationally, licensing costs the American economy nearly 2 million jobs every year. This is because licensing keeps many people out of their preferred occupations, artificially limiting the pool of workers in those occupations. In so doing, it also limits consumers’ options—and it does so without necessarily increasing service safety or quality. For instance, the state of Louisiana is the only place in the country to require florists to be licensed. An Institute for Justice study found no difference in quality between Louisiana florists and their unregulated counterparts across the border in Texas.
Although licensing doesn’t necessarily increase service quality, it may make licensed services more expensive. With fewer competitors, licensed workers can often charge more for their services. Some consumers can afford to pay the premium, but others go without the service or try to do it themselves. When consumers buy less of something because of licensing, this is what is known as a “deadweight loss.” Deadweight loss costs the national economy a total of $6 billion each year. The cost in California alone is more than $840 million.
But that measure doesn’t capture everything that is lost to occupational licensing. More broadly, licensing also leads to misallocated resources. For example, deadweight loss doesn’t include the cost of an individual going back to college to get expensive and often irrelevant training that’s required for a license but won’t necessarily make them better at the job. It also doesn’t include the cost to the economy of someone being prevented, by licensing, from working in the occupation in which they would contribute the most value. Calculation of misallocated resources does capture such costs—and many others. By this broader measure, licensing’s costs add up to an astounding $184 billion nationwide
The Minnesota music therapists didn’t succeed in persuading legislators to create their proposed license, but that doesn’t mean they won’t try again next legislative session. Unfortunately for consumers and those who wish to freely practice this occupation, those seeking to protect themselves from competition through government force have every incentive to keep at it. Legislators need to know that licensing occupations isn’t a low-cost way to buy a few votes. For every person lobbying them to create new red tape, there are hidden job-seekers and consumers who will pay. These individuals may not go to state capitols to testify against licensing, but this new study speaks for them about the costs they bear thanks to occupational licensing.