OPINION:
Higher prices are making this holiday season more difficult for families across the country. Most of the responsibility for reining in inflation sits with the Federal Reserve and Congress, but licensing reform is one way that individual states can help.
We’re feeling the bite of inflation with every purchase at the grocery store and the gas pump. Overall, prices are up 7.7% from a year ago, and food and energy prices are up over 10%. Sure, this dampens our spirit as the holidays are in full swing, but we’ve been feeling the pain when buying the necessities all year. And sadly, it doesn’t show signs of stopping.
Eliminating unnecessary and expensive state licensing barriers can bring down the prices of key services for consumers.
Occupational licensing laws are designed to protect consumers. They establish minimum standards for professionals, making it illegal to practice without a license. These licensing requirements include education, training, and passing exams. But it all comes with a cost.
Meeting licensing requirements creates a substantial cost for professionals. For many people, taking years off work and paying for education and training is a barrier to entry that prevents them from ever working in that profession. This is more than just theory; economists find evidence that licensing laws reduce the number of professionals by up to 27%.
So how does this translate to higher prices?
Restricting the supply of professionals will naturally raise the price of their services. With fewer professionals offering their services to consumers, they have room to charge higher prices. Research consistently finds that licensing leads to higher prices. This is true of a range of services that consumers rely on. In addition, the expensive entry requirements increase the cost of providing services for each professional, which also encourages higher prices. In total, we end up spending an extra $7.1 billion because of licensing laws — a considerable sum.
Reforming licensing laws can help bring down prices for licensed services. Removing unnecessary licensing laws or reducing entry requirements will allow more people to enter professions and begin competing. Trying to attract business from other professionals will encourage them to charge lower prices.
Licensing reform is a rare example of bipartisan agreement. Both Democrats such as Lawrence Summers and Republicans on the Joint Economic Committee have recently recommended licensing reform as one fix, among many, to rein in inflation.
But is it worth it to save a few dollars if people get hurt? Luckily, this is not a choice that we face. Research fails to find that licensing improves the quality of services. If we think about licensing, we usually think about professions like physicians and lawyers. But there are over 2,700 professions that are licensed in at least one state. Most of them pose no risk of actual harm to consumers.
We have plenty of room to reform licensing laws if we’re willing.
With inflation running over 7%, it’s essential that we take steps to bring down prices. Although occupational licensing is well intended, it significantly raises the prices that consumers pay. It’s more important now than ever to make sure we don’t unnecessarily increase prices.
Inflation has been hurting consumers all year. Occupational licensing reform is not a silver bullet that completely eliminates the pain and suffering associated with inflation. It is, however, one of those rare examples where both sides of the aisle agree. States that want to give their residents the gift of lower service prices should consider serious licensing reform.
• Conor Norris is assistant director and Edward Timmons is director of the Knee Center for the Study of Occupational Regulation at West Virginia University. Mr. Timmons is also a senior research fellow with the Archbridge Institute.
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