(Grant Phillips) The American Dream represents hard work and success of free individuals pursuing their own economic gains. It is often expressed in “rags to riches” stories of impoverished citizens obtaining great feats through their free will. Today, people question whether that dream still exists. Politicians want to impose more regulations to “restore the American Dream”. In reality, we need less regulation and more economic freedom. People can lift themselves from poverty, but it has to be easier to start lifting.
Licensing regulations reduce economic freedom by creating barriers to market entry. For example, in my current home of Philadelphia, bloggers are required to obtain a $300 permit from the city. Blogging is by no means a lucrative business. In fact, an estimated 80% of bloggers will never make more than $100 from their work. A city official ironically says Philadelphia “loves the self-employed”. These permit-happy bureaucrats fail to grasp basic economics: occupational licensing can be detrimental to the economy.
Today, nearly 500 different occupations require some form of licensing. Economically speaking, this translates in to a reduction and constraint on supply. From hair braiding to lemonade stands, government has increasingly targeted different occupations for licensing. Licenses are now required by 30% of occupations in the workforce, which is up from 5% in the 1950s. This does not mean that more occupations require exceptional training. It does indicate that more occupations are prohibited without such a license.
Occupational licensing can protect consumers, particularly in markets where expertise is required (such as electricians). However, applying that logic to electricians does not make it true for dog groomers, nor does it help the consumer. According to a Brookings Institute study, there is “little evidence that occupational licensing has improved quality of services”. The study also found that, in many cases, occupation licensing has “increased prices and limited economic output”.
While these laws keep competition out of the market, those already established in the market enjoy the protectionist laws and economic data shows why. Researchers found that licensed workers have their wages raised by as much as 15%. Due to supply constraints, consumers must transfer a higher dollar amount to licensed workers. Thus, licensed workers enjoy higher wages regardless of the market equilibrium. In this sense, occupational licensing is an indirect price control and protection from competition.
A common theme for politicians has always been “helping the poor”. Most of their solutions compound the problem without addressing the root. Economic liberalization is the most effective means to reduce poverty. However, research has found occupational licensing to be detrimental for low income citizens because of the price floor on market entry. Economic models have shown these laws can lead to 2.85 million fewer jobs with an annual cost to consumers of $203 billion. Policies that constrain supply and reduce aggregate demand are not beneficial to anyone, let alone helpful to the poor.
Economic freedom is a major part in the foundation of liberty. I find it morally objectionable to forcibly prohibit an individual from pursuing a better life solely because they cannot afford the mandatory fees and requirements. No one should be protected through government force any more than anyone should be prohibited.
Perhaps Henry Hazlitt said it best: “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”