What is an advocate of the free enterprise system to make of what are often incredibly onerous licensing requirements to perform certain professions in the United States? Surely we all feel better knowing that our physicians, aircraft pilots, attorneys, and civil engineers are licensed. But what about manicurists? Home daycare providers? Yoga instructors? These are professions that require licensing in many states. Should they?
According to the New York Times, "in 1950, fewer than 5 percent of Americans worked in jobs that required licenses. Today, it’s roughly 30 percent, and that number is likely to grow."
I spoke to my father, Tom Ellis, a painting contractor who runs a company that specializes in painting custom homes in Northern California, about his views on licensing requirements for his industry.
"Licensing is no proof of expertise," he explained, "but it puts some minimum standards in place. You can be an incompetent imbecile and still pass the licensing test, but the licensing requirement does weed out those on the margins who have no business being painting contractors.
"I'd rather there be a private alternative to government licensing," Tom continued, "but one reason I think licensing is essential at this point in time, is that there are so many [illegal] immigrants in the construction industry, and they can't become legitimate competitors without licensing."
One failure of a free market is asymmetric information, a situation in which one side of a business transaction is missing important information about that transaction. One reason I love consumer rating websites like Yelp (which I use for restaurants, physicians, and churches) and Rotten Tomatoes (for movies) is that they help correct for the problem of asymmetric information by giving the consumer some idea of what to expect. And government licensing performs a similar function for many industries where consumer rating systems are not in place or not possible.
But surely not all industries should require licensing. For example, this African American hair braider in Utah. Why on earth should she require a license to braid little girls' hair? How does a champion of free markets draw a line between what represents an appropriate use of licensing and an abuse of licensing?