Occupational Licensing and Goldilocks

Don Boudreax has a good editorial up on occupational licensing

The first hint that the real goal of occupational licensing isn't to protect consumers' health and welfare is that far too many of the professions that are licensed pose practically zero risks to ordinary people. Among the professions that are licensed in various U.S. states are florists, hair braiders and casket sellers. What are the chances that consumers will be wounded by poorly arranged bouquets of flowers or that corpses will be made more dead by defective caskets?

The real goal of occupational licensing is to protect not consumers, but incumbent suppliers. Most occupational-licensing schemes require entrants into a trade to pass exams — exams designed and graded by representatives of incumbent suppliers....

But what about more “significant” professions, such as doctors and lawyers?

The case for licensing these professions is no stronger than is the case for licensing florists and hair braiders. The reasons are many. Here are just two.

First, precisely because medical care and legal counsel are especially important services, it's especially important that competition to supply these services be as intense as possible. If the price of flowers is unnecessarily high or the quality poor, that's unfortunate but hardly tragic. Not so for the prices and quality of the services of doctors and lawyers.

Too high a price for medical visits will cause too many people to resort to self-diagnosis and self-medication. Too high a price for legal services will cause too many people to write their own wills or negotiate their own divorce settlements. Getting matters wrong on these fronts can be quite serious.

Won't, though, the absence of licensing allow large numbers of unqualified doctors and lawyers to practice? No.

People are not generally stupid when spending their own money on themselves and their loved ones. Without government licensing, people will demand — and other people will supply — information on different physicians and attorneys. Websites and smartphone apps will be created that, for a small fee, collect and distribute unbiased information on doctors and lawyers. People in need of medical care or legal advice will be free to consult this information and to use it as they, rather than some distant bureaucrat, choose

One thing I think sometimes gets lost -- the critique of licensing often focuses on where licensing is too restrictive - e.g. hair braiding or taxis or simple medical procedures.

But it is just as likely to fail because it is insufficiently restrictive. People will always say to me that they certainly want their brain surgeon to be a licensed physician, implying that licensing is appropriate for certain extreme skills. But would you really choose a brain surgeon merely because he or she was licensed? I would do a ton of research in choosing a brain surgeon, research that would go well beyond their having managed to pass some tests 20 years ago.

The same applies for restaurants - my standards go way beyond whether they have a 3 basin cleanup sink and have sufficiently high temperatures in their dishwasher.

The criteria for licensing is never "just right". Either it is too restrictive and eliminates competition that would provide me value; or else it is insufficiently stringent such that I have to perform the same due diligence I would have in the absence of any licensing regime (though perhaps with less robust tools since licensing likely stunts development of such consumer tools). And even if it happened to be well-calibrated for me, it will not be well-calibrated for my neighbor who will have a different set of criteria and preferences.


  1. Sam L.:

    "Websites and smartphone apps will be created that, for a small fee,
    collect and distribute unbiased information on doctors and lawyers. " Some unknown percentage will be biased for and against; whether that's below the noise level, or way above it. that, too, is/will be unknown.

  2. mahtso:

    Although I agree with the proposition that there are too many licensing requirements, the section the blogger quoted appears to have a logical flaw: it shows that people are not able to effectively write their own wills or handle their own divorces, but goes on to say that in an unregulated environment these same people would be able to hire someone who could do a good job. It seems to me that if I was not smart enough to do it right, I would not be able to determine who is doing it right.

  3. curmugeon:

    Primary care physicians tend to be chosen on the basis of convenient access and personality/interpersonal reactions. Rarely do patients have any problems that
    go beyond the individual physicians database and intellectual capacity to deal with. PCP are generally the source for recommendations for specialty care as needed.
    Physicians that are hospital affiliated are judged on a day to day basis by polling firms who call and ask patients about their experience with the hospital, a procedure
    that hospital affiliated physicians regard as the medical version of beauty pageants, all flash having little to do with quality but more with personality and satisfaction.
    These factors do overlap of course. States are increasingly buying into the idea that "Maintenance of Certification" is a requirement for licensing. This amounts to
    continuing education and satisfying specialty board annual requirements above and beyond continuing education. Under the PPACA, physicians, hospitals and other
    care providers will be aggregated into ACOs and it is unclear how "competion" will work when your health insurance limits you to a panel of physicians/hospitals or to
    one ACO, if indeed there is more than one ACO in a given area.

  4. Joe_Da:

    I am a CPA with a specialization in taxation. Do i can about the unlicensed tax preparers - absolutely not. The vast majority are not going to compete for the same client base that most CPA's deal with.

  5. NL7:

    I seldom elicit the anger of fellow lawyers (previously fellow law students) so reliably or frothily as when I suggest in online forums that all lawyer licensing be made voluntary.

    They generally all agree that the bar is not a great metric for legal skill or success. My argument is that giving a formal license for passing the bar exam needlessly elevates the skill of some people who would otherwise be much less trustworthy. In other words, rather than excluding the incompetent, it elevates a portion of the semi-competent. For example, I do tax law but there was not a single tax law question in two days' worth of bar exam questions - why should anybody use bar licensing to pick a good tax lawyer?

    But the inevitable reaction is a comparison is to doctors. Most lawyers and law students hate the idea of doctors being licensed and important but lawyers not meriting special rules and restrictions.

    So I think a big feature of licensing is not just financial compensation, but the sense of being in an important club. No archetypal clubhouse is complete without a "KEEP OUT" sign pointing at non-members. In GMU-nomics terms, it's about signaling.

  6. Not Sure:

    "It seems to me that if I was not smart enough to do it right, I would not be able to determine who is doing it right."
    If you're not smart enough to do it right, how can you be smart enough to elect politicians to manage the regulatory bureaucracy supposedly needed to do it right?

  7. mahtso:

    Valid point, and I made the same one when the blogger was writing that Arizona was not able to properly manage its parks and so should hire someone like him. More to the point (of this post), whether "we" are smart enough to do things ourselves should not be the metric by which licensing schemes are accepted or denied.

  8. NL7:

    In a world without bar licensing, people will rely on the stuff they do today - referrals, education, resume, experience, and outside ratings program. Nobody tries to find the first lawyer who's bar licensed and assumes that's it. One could easily pass the UBE while failing the trust/probate portions.

    Of course, given that LegalZoom makes it easy to find a will and given that trust companies and banks find it valuable to be trustees, there is plenty of demand to provide end of life planning. It would also be easy to fill out a form will, especially in a holographic-will state.

  9. MingoV:

    I'm a pathologist. I can speak from both first- and second-hand experience that a state medical license is of zero value. All it means is that the physician submitted the proper pieces of paper and paid a fee. That's it. It says nothing about quality of training, experiences, error rates, etc. In the past twenty years I reported three physicians to their state medical boards. Two for gross malpractice and one for malpractice and ethical violations. Not one of the three received even so much as a reprimand.

    Professional board certifications are better than licenses, but not perfect. If licensure disappeared, I guarantee that private quality assessment companies would form, and that all the good physicians would cooperate with them. Physicians who don't participate in quality reviews would lose business.

    A professional assessment company can rank physicians not only on overall quality within their specialty, but also on quality in a subspecialty. For example, a pediatrician could have an overall score of 88 and a pediatric cardiology score of 95. Patients could easily see who would be the best choice.

  10. MingoV:

    I lived in a state where the people who cut hair needed licenses. Some of the did good jobs. Some did bad jobs. How did the license help me? Would I do worse at picking hair stylists if they weren't licensed. I don't think so.

  11. Gil G:

    Stupid? Perhaps a better word is "desperate" with regards to a sick family members hence "naturopaths" get an edge in the marketplace.

  12. Old Dude:

    One of the news shows did a story on Day Care licensing. They submitted the paperwork to their state license board. As a test they listed known sex offenders as employees and wrote in street addresses that didn't exist. All locations received their licenses. When the reporter met with the license board, the manager explained that they had only 13 inspectors for the entire state. They do not research the info on the application, they just issue licenses and only performed inspections years later, if at all. When asked how this made licensed day care superior to unlicensed day care the manager answered frankly "Well the licensed day care paid their fees."

  13. mahtso:

    I don't know what your state's requirements are, but I suspect it goes to more than the quality of the hair cut and also covers health and safety issues. Nevertheless, it would not bother me if barbers could operate without licences.

  14. mahtso:

    It is a bit silly to discuss licenses in the abstract and instead I think one needs to go profession by profession. But to say that independent agencies and independent research will necessarily work in the medical field is hard for me to accept.

    Consider a real life example: The 3 year old starts falling down and in a few hours is being air evac'd from a remote location to Phoenix. I don't know if she was checked right in or went through ER. Then she is diagnosed with a brain tumor and treated with chemo and radiation, and requires an operation to facilitate the chemo work.

    The air evac Co is licensed by the state; the pilot by the feds (I assume); there would have been a nurse and paramedic (or both) and EMT on the flight; ER docs and nurses; regular hospital docs and nurses, and nurses aides; laboratories (licensed by the state in Az); and no doubt many that I don't know about.

  15. mahtso:

    So that paperwork does not include graduating from an accredited medical school. Candidly when I read no discipline on a complaint, my first thought is that the complaint was bogus (yes, I have been involved in both types: those with merit and those without). Finally, if the Boards are useless, why isn't there a booming market for private quality assessment companies now?

  16. Captain Profit:

    >> "It seems to me that if I was not smart enough to do it right, I would not be able to determine who is doing it right."

    Are you smart enough to turn some silicon and metal and plastic into a mobile phone? If not, how did you determine that the people you paid to do it for you did it right?

  17. Mercury:

    Invalid point.

    It's not all about you. In the case of lower skilled professions like hair stylists it's about an artificial and unnecessary barrier to entry that prevents honest and hard working people from making a living and providing a service to the public that other adults are happy to pay for. For poorer people it often comes down to: Sorry! unless you pay $20k for fees, "credentials" and BS you can't hang out a shingle and braid hair to make money to support your kids...here's your EBT card, remember to vote Democrat!

    Come on, even NPR has figured this out: http://www.npr.org/blogs/money/2012/06/22/155596305/episode-381-why-its-illegal-to-braid-hair-without-a-license

  18. mahtso:

    There all easy when you know the answer: I test the phone.

  19. mahtso:

    I don't see how your comment (Mercury) shows that Not Sure did not make a valid point. But, then again, a vest has no sleeves. And again, I agree that there are too many licensing requirements.

    (And for what its worth, these same barriers to entry also stop dishonest people from providing services too. For example, you will not get a CNA's license/cert in Az if you have committed a felony in the last 5 years and if you previously stole from a patient, I doubt you would ever get it.)

  20. mahtso:

    PS -- Yes I am smart enough -- but I acknowledge that before I could do so, I would need to gain more knowledge.

  21. Eric Wilner:

    And what are the occupational licensing criteria for those public officials who engage in central economic planning, diplomacy, or other activities which can kill millions when they go wrong?

  22. W.C. Taqiyya:

    At it's best, certifications and licenses serve to establish that a minimum standard of competency has been met by the holder of said document. For some professions, this standard can be set very high. As for certain types of inspectors and instructors. Some are required to prove many years of experience and expert proficiency through a series of rigorous tests. A driving license for John and Joan means they can safely navigate the roads in a motor vehicle. Sometimes licenses are required to manage a limited resource efficiently and fairly. Like in the case of hunting, fishing and trapping. Sometimes, a license is used to prove membership in a guild. As with doctors and lawyers. In those cases, the license is mainly an internal control mechanism for those rare instances when one of their members gets suspended or punished for malpractice. Licenses are not a one size fits all proposition. Let the consumer beware.

  23. MingoV:

    The state licensure requires pieces of paper which include med school transcripts. Big deal. That says nothing of quality.

    I did not say Board certifications are useless. I said they aren't perfect. Please read before you complain.

  24. mahtso:

    I stand corrected, it was not that board cert's are useless but " state medical license[s are] of zero value. " In Az it is the Medical Board that grants licenses, so how that fits in I am not sure. And if you would read what I wrote, it was in no way a complaint, but rather a question, so stop your complaining.

  25. Mercury:

    Well, that logic simply doesn't hold water: You can be both A) not able/smart/strong enough to defend yourself from the bully and B) be a pretty good judge of who is able to defend you against the bully at the same time.

    But my "it's not all about you" point is that you can cause all kinds of harm by allowing an authority to restrict free enterprise in exchange for the simple promise of security. Perhaps there's a happy medium which is different for different circumstances but the consumer isn't the only potential victim here and too often the authority is the happy, liability-free middleman who can get away with demanding large rents in exchange for dubious credentials that claim to insure against vague risks.

  26. Griffin3:

    In a world without bar licensing, how would you know your drink was made correctly? You might order a Tom Collins, and end up with a Gin Fizz -- ¡Que Horror!

  27. mahtso:

    I can agree with much of this, but I think it is incomplete because many licensing schemes go to not only competency, but also to character. A good recent example is the California Bar's and Cal. Supreme Court's refusal to grant Stephen Glass a law license based on (in essence) a lack of good character.

    As to the rarity of punishment for bad acts, a (fair) criticism of some licensing entities is that they are much "softer" on misdeeds that occur after you get the license than before the license. That is, an act which might bar you from getting the license will not necessarily result in your license being revoked.

  28. c_andrew:

    "People will always say to me that they certainly want their brain surgeon to be a licensed physician..."
    My GP's favorite question is, "Do you know what you call the medical student that graduates last in his class??? Doctor."

  29. BillRobelen:

    The one argument for hairdressers needing schooling and licensing is the many ways they can injure someone or severely mess up hair with all of the chemicals they work with.