As I explained in 2017 (see here, here, and here), it is unfair and destructive when politicians and bureaucrats require that people get permission from the government before working in a profession.
This heavy-handed approach, which especially disadvantages low-income people, is known as occupational licensing and I wrote two years ago, in Part I of this series, about a report showing that Arkansas was America’s worst state and Kansas was the most laissez-faire state.
What if we look at countries? Which nations impose the most barriers to work and entrepreneurship and which ones allow free enterprise?
According to new academic research, the worst country is India, followed by South Africa and Australia.
Denmark, meanwhile, is the best nation, followed by Latvia and Sweden.
The United States, I’m embarrassed to note, ranks in the bottom third.
Here are some details from the study, which was authored by Jonathan Hartley and Morris Kleiner.
They didn’t just measure the extent of licensing rules. They also calculated the economic consequences.
Across 44 countries, we find that occupational licensing is a pervasive feature of modern labor markets. The typical country in our sample licenses roughly one-quarter of its workforce, and the cross-country distribution exhibits substantial variation, ranging from roughly 14 percent in Denmark to more than 40 percent in India. …An additional contribution of the paper is to document that occupational licensing is systematically related to broader measures of economic and institutional performance. Countries with higher licensing prevalence tend to exhibit lower GDP per capita, larger informal sectors, and lower scores on multiple dimensions of governance quality, including regulatory quality, rule of law, political stability, and control of corruption. …More broadly, our findings suggest that occupational licensing should be viewed as a comparative political economy institution whose prevalence reflects broader differences in how countries organize labor markets, regulate professions, and allocate economic opportunity.
It’s hardly a surprise that government interference in labor markets has a negative effect.
Let’s now look at another chart from the study. It shows that the United States has moved in the wrong direction since World War II, though it appears that there’s now a slight trend in the right direction.
At the risk of having this become a lengthy column, let’s look at some excerpts from a column in the Washington Post by Sarah Harbison.
Ashley N’Dakpri…took over Afro Touch’s Gretna, Louisiana, location, building a thriving business as natural hair styling boomed. Then the state stepped in. The Louisiana Board of Cosmetology informed her that without an “alternative hair design” permit — requiring 500 hours of government-mandated training — she was braiding hair illegally. Even though N’Dakpri had spent years perfecting her trade and helping her customers, she needed a government permission slip to keep working. …For low-to-moderate-income workers, this isn’t a bureaucratic inconvenience. It is a genuine barrier to economic survival. …Mississippi reformed its licensing rules in 2005 and now just requires braiders to pay a $25 registration fee, follow basic health guidelines and pass a sanitation test. As of 2022, the Magnolia State had nearly 7,000 registered hair braiders. Louisiana has 124 permit holders. …Vested interests will always seek to use licensing as a competitive moat rather than a consumer protection. The health-and-safety argument for 500 hours of mandatory training does not hold up to scrutiny. That’s why most states don’t even require licenses for their hair braiders. What Louisiana’s licensing regime actually produces is fewer entrepreneurs, higher prices and diminished opportunity for the mostly working-class.
I’ll close by explaining why politicians impose occupational licensing. It’s a classic example of “public choice.”
People in an industry (like cosmetology) bribe politicians to create barriers to entry. That means fewer competitors, which makes it easier to charge above-market prices.
