Saturday, May 09, 2009

Economics of Occupational Licensing

Here's a surprising fact from a economics paper I came across:

in 2006, 29 percent of the workforce was required to hold an occupational license from a government agency

Here are some examples of jobs that need government permission:

In Alabama it is illegal to recommend shades of paint without a license. In Nevada it is illegal to move any large piece of furniture for purposes of design without a license. In fact, hundreds of people have been prosecuted in Alabama and Nevada for practicing "interior design" without a license. Getting a license is no easy task, typically requiring at least 4 years of education and 2 years of apprenticeship.
These extreme examples show the absurdity of government licensing. It only blur the lines of competition by increasing the costs of entry, which raises the price of goods for all consumers. Pay attention and you'll notice that the major advocates of licensing are those who already have it. There's no reason to think that market competition can't give us the information we need on our professionals. I think there is a huge demand for cheaper, lower quality professional work that is kept out of many professional jobs. In fact, I can't think of any job where I want government certification, not even public education (and I'm already certified).

13 comments:

  1. Civil Engineering

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  2. Do you think good and bad civil engineers are indistinguishable? If they aren't, then why not let financiers pick their own engineer based on their ability? How much extra information does a license give you?

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  3. Yes, the bad ones always have a scar on their face and a lazy eye. I believe in civil engineer profiling.

    Without licensing, financiers will pick the cheapest civil engineer available. This engineer will build a building which will eventually crumble and kill people.

    In libertarian fantasy land, the financiers would not pick the bad engineer because he/she is too great of a risk, should the building crumble. In real-life land, the financier is under immense pressure to get the building up as quickly and cheaply as possible, and will overlook the long term consequences.

    Not that a licensed engineer couldn't build something terrible. It happens, but hopefully less often.

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  4. "Without licensing, financiers will pick the cheapest civil engineer available."

    No they wouldn't. In a world of lawsuits the cheaper choice isn't necessarily cheaper construction.

    "get the building up as quickly and cheaply as possible, and will overlook the long term consequences."

    Why? As long as they are help responsible for them, there's no reason to believe this.

    Not that an unlicensed engineer couldn't build something terrible. But there is plenty of evidence that market competition will bring about more information than government licensing.

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  5. If you ever build your own house, remind me to stay on the porch.

    Don't you understand that I agree we should probably have less licensing? Licensing for interior designers is probably wasteful. Why must you go to the extreme of lumping together someone who decides where the drapes are hung with someone who builds a 10 story skyscraper?

    OF COURSE cheaper choice doesn't necessarily mean cheaper construction. I happen to be an engineer, so I know that. But licenses are insurance that people who build things which could affect the lives of other people (buildings, bridges, high voltage electricity) don't cut corners.

    Bad builders will overlook long term consequences BECAUSE IT'S CHEAPER TO DO SO. That's the reason to believe it. Do really think if the market controlled everything then we would have no faulty bridges and buildings? Licenses help PREVENT people from making bad decisions which could kill people.

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  6. I take it to an extreme because that's how far I think it should go. If no to interior designers, but yes to civil engineers, where do you draw the line? It seems you're happy with letting politicians draw that line. I am not.

    Also, I have more confidence in private information about builders than public information.

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  7. How do you distinguish between good and bad engineers? Typically, someone is a bad engineer if their design fails. In this case, that could/would cost lives. Wouldn't it be better to have some sort of measure to judge the engineers? It doesn't necessarily have to be government licensing, but it seems like that is a logical option.

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  8. My friend, everything in life is about drawing a line. And yes, in some cases, I am comfortable in letting the government draw these lines.

    You don't think we need stricter control of people whose jobs affect the lives of others than people whose jobs don't? You don't think a line should be drawn there? Wow.

    I do not have complete confidence in either public or private information. I think they should be a check on each other. Which, lucky for me, they are.

    Well said, A.F. It seems to me Harrison thinks that if a business builds his house, purely by virtue of it being a business that does it, it will be perfectly built.

    A thought occurred to me today, Harrison. Perhaps you have so much distrust in government and so much faith in business because you've never worked for a business, only the government. Maybe if you worked for a business you might be more inclined to believe in their ability to make bad decisions. It would also make The Office a whole lot funnier.

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  9. Conversely, maybe I should work for the government...

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  10. "How do you distinguish between good and bad engineers?"

    The same way I determine who makes good Chinese food. I listen to people I trust, I read reviews, etc (so to sum up, I let the market decide). Is distinguishing between a good engineer any more difficult than a good chef, life guard, or bus driver?

    "Wouldn't it be better to have some sort of measure to judge the engineers? It doesn't necessarily have to be government licensing, but it seems like that is a logical option."

    YES! I think that is a great idea. The more information the private sector can produce the better. I think professional associations are great. What I don't like is when people who don't join those associations are banned from working in the sector. Set up a ranking system and let consumers decide.

    "You don't think we need stricter control of people whose jobs affect the lives of others than people whose jobs don't?"

    Can you name a job that doesn't affect the lives of others? Toy makers in China have threatened the lives of people. Should there be a government license for making toys?

    Back to AF's note, I would totally support a private agency that ranks the structural integrity of buildings. For two reasons: 1) its not the government job (Constitutionally and in my opinion), 2) private industry has the incentives to make them better at it.

    "Harrison thinks that if a business builds his house, purely by virtue of it being a business that does it, it will be perfectly built."

    Not perfectly built, but built closer to how people want it. Businesses have to respond to what individuals want. Licenses have to respond to what inspectors want.

    "Maybe if you worked for a business you might be more inclined to believe in their ability to make bad decisions."

    You're right. I have been surprised by the seemingly shortsighted behaviors of the entire housing industry. Also, I've heard some horror stories from friends' jobs. But if a company does something dumb, that mostly effects that company (or at least that was true a year ago). Whereas politicians' bad decisions effect us all and on a much larger scale (like the swine flu vaccinations in the 1970's).

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  11. Ah, so an engineer who makes underwater sensors (me) has the same affect over other people's lives as an engineer who built the Sears tower. I see.

    By the way, I'm totally fine with an independent party controlling licensing. In fact, I'm not sure this isn't the way it's done currently. But I think the government should require that public buildings be built to certain standards by competent people, so shady businesses don't build things that kill people to make a buck.

    I have a feeling I know what you're going to say to this, and I know what I'm going to say to that, and so on. So I'm out.

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  12. I don't want to drag too many personal issues out onto the web, but I do want to publicly state to anyone that might visit this post that I have apologized to Harrison for being a jackass in these here comments. Harrison's character and intellect, not to mention our friendship, do not deserve the petty, personal crap that plagued some of my statements.

    And for the record, if he ever builds his own house, I will be delighted to visit.

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  13. Ha ha, thanks Justin. For those that haven't had the pleasure of knowing Justin Scott personally, he a man so humble, he feels the need to publicly apologize. The "Confident Harrison Brookie" is always learning something from him.

    And for the record, if I ever built a house, I don't think I'd go in it. But I'll be darned if the government can tell me I can't!

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You are the reason why I do not write privately. I would love to hear your thoughts, whether you agree or not.