Reason Foundation

Is California Still Going to the Dogs on Pet Groomer Licensing?

Posted on July 10, 2012, 2:41pm | Adam Summers

In a previous blog post I wrote about an effort to require every pet groomer in the State of California to obtain a state license, along with all the requisite fees, requirements, and arbitrary regulations that go along with that. The bill, SB 969, generated such a backlash from business groups and the grooming industry (although there were doubtless some that supported imposing tougher, higher-cost standards on their current and would-be competitors) that it was watered down so that instead of imposing mandatory licensing it now calls for the establishment of a voluntary state certification program (which means there would still be more needless bureaucracy).

While this is an improvement over the original legislation, since the state would no longer force groomers to jump through all its hoops while driving up costs to businesses (and, ultimately, consumers), it should still give groomers and consumers alike pause (or is that "paws"—sorry, couldn't resist). As I mentioned to a reporter for an article on the legislation in the L.A. Times, the voluntary certification would likely be merely a short-term stepping stone to imposing mandatory licensing in the future, as evidenced by the previous attempt to do just that and the fact that the tendency over the last several decades has been for the number and stringency of government licensing laws and regulations to grow.

Moreover, a state certification programs would be duplicative and unnecessary. There is no shortage of private pet groomer associations and certification organizations, including:

• International Professional Groomers, Inc.
• International Society of Canine Cosmetologists
• National Dog Groomers Association of America
• Professional Cat Groomers Association of America
• Northern California Professional Groomers Association
• Southern California Professional Groomers Association

In addition to offering testing and certification services, organizations like these offer groomers training, continuing education, and mentoring programs. Voluntary (private) certification allows groomers to meet certain standards and advertise their competency to consumers, while still leaving groomers and consumers free to choose whether certain certification is necessary to do the job. This allows for the greatest competition, the lowest prices, the most consumer choice, and the greatest economic opportunity and freedom to work in the occupation of one's choosing. Businesses that offer shoddy work will suffer from their bad reputations and cease to be in business, and if harm is done to pets owners may seek legal recourse. (Aggrieved pet owners may even be able to avoid the legal system and receive just compensation for themselves and punishment for the negligent groomer by enlisting the aid of certification organizations or groups such as the Better Business Bureau.)

The L.A. Times column also cited my 2007 occupational licensing study, which, in addition to outlining the economic and moral arguments against mandatory (government) licensing, contained a fairly comprehensive listing of which occupations require licenses from each of the 50 states. By this metric, California was the most regulated state in the nation, requiring licenses for 177 occupations—nearly double the national average of 92. This should not be surprising for a state that consistently places at or near the bottom in surveys of state business climates.

In light of its poor business climate, California should be looking to expand economic opportunities and freedom, not restrict them. Especially in an economic climate like today's where there is such a concern for jobs, jobs, jobs, state and local governments should simply get out of the way and remove licensing and other harmful business regulations.

One groomer quoted in the L.A. Times article probably said it best:

"I want the government out of my salon," said Johnny Ray, co-owner of the Dog House in North Hollywood. "It's just a money grab."

Related Research and Commentary:

» "State is barking up wrong tree on pet groomer licensing" (U-T San Diego op-ed)

» "Bill would hound pet groomers" (Orange County Register editorial)

» "California Bill Proposes Licensing for Pet Groomers" (Reason.org blog post)

» Occupational Licensing: Ranking the States and Exploring Alternatives (Policy Study)

» "California Licenses Most Jobs in Nation" (Los Angeles Business Journal op-ed)

» "Lawyer Licensing Laws Lead to Higher Prices, Less Consumer Choice and Access to Legal Services" (Reason.org blog post)

» "Occupational Licensing and the Beard Trimming Turf War in Texas" (Reason.org blog post)

» "State Licensing Mandates for Movers in Illinois Increase Prices, Reduce Job Opportunities" (Reason.org blog post)

Privatization Proposed for Micke Grove Zoo in San Joaquin County, CA

Posted on May 29, 2012, 7:00am | Harris Kenny

Zachary K. Johnson of the Record Staff reports:

It has been six years since Micke Grove Zoo lost its national accreditation and more than three years since work to remake the eastern end of the zoo came to a halt, leaving a large, dormant construction site...

And now a newly-invigorated nonprofit organization is hoping to breathe new life into the public zoo with a plan to privatize it, reclaim its lost accreditation and guide the San Joaquin County institution into a bigger future.

The Micke Grove Zoological Society - longtime supporters of the zoo and its programs - would like to one day take over operations. The group has hired a consultant (Terry Maple) who is an expert in zoo privatization.

The Micke Grove Zoological Society is rightly identifying a national trend towards public-private partnerships for amenities like zoos, which was recently highlighted here in Reason Foundation's Annual Privation Report 2011. According to some estimates, as many as three-quarters of all U.S. zoos are now privately operated, including cities like Sacramento, Fresno, Atlanta, Chicago, Dallas, Denver, Houston and Seattle.

Issues at the Micke Grove Zoo in San Joaquin County, California are similar to those seen at many zoos across the country over the past few decades. In short, scarce taxpayer dollars have been directed towards high priorty services like law enforcement and education, while amenities such as zoos have been neglected. Johnson reports the Micke Grove Zoo lost its accreditation in 2006 due to its outdated facilities and lack of veterinary space.

Under the proposed partnership the private partner, the Micke Grove Zoological Society, would assume control of day-to-day operations and improve conditions for the animals in hopes of regaining the facility's accreditation. Meanwhile the public partner, San Joaquin County, would retain ownership of the facility and retain oversite through the contract. Maple explains the plan saying, "This is going to be fun to take this zoo to the next level. It will be a smarter organization, a more flexible organization."

For more on zoo partnerships, see the following extract from Annual Privatization Report 2011 entitled, "Privately Operated Zoos Now Considered the Standard."

California is Barking Up the Wrong Tree with Pet Groomer Licensing Bill

Posted on February 27, 2012, 2:10pm | Adam Summers

Earlier this month, I wrote about a proposed bill in California to require state licensing for pet groomers.  The legislation, SB 969, would impose fees on would-be groomers, require applicants to pass written and practical examinations administered by the Veterinary Medical Board, mandate detailed and burdensome record-keeping requirements for groomers, dictate certain other business practices, and spawn an army of bureaucrats to go around inspecting every dog grooming business in the state at least once a year.

None of this will do anything to improve the quality of pet grooming services—the supposed rationale behind the bill—but it will increase the cost of grooming services, reduce competition and consumer choice, and, because of the high costs of fees and compliance with state regulations, deny gainful employment to many who would otherwise be competent groomers and entrepreneurs. This is California big government thinking in a nutshell: there must be a government solution to everything, and taxes and regulations can surely cure every real or imagined ill in the world. Of course, in reality, this only serves to deny Californians economic liberties and opportunities, which they oftentimes seek elsewhere (as evidenced by their migration to more business-friendly states like Texas, Nevada, and Utah).  No wonder the state is saddled with such a poor business climate and mired in unsustainable spending and chronic and significant budget deficits.

In a San Diego Union-Tribune op-ed column, I make the case against the pet groomer licensing bill and occupational licensing in general. Below is an excerpt of the article.

While we love our pets dearly and want to protect them from harm, mandatory state licensing is not the answer. As numerous economics studies of a wide variety of professions have demonstrated, licensing rarely leads to improved service quality, and oftentimes results in worse quality. While this might sound counterintuitive, there are several reasons for this.

The one-size-fits-all regulations imposed by the state may be arbitrary (not necessarily an accurate measure of groomer competence) and give consumers a false sense of security about the competency of licensed groomers, causing them to be less cautious about whom they do business with than they otherwise might be. In addition, licensing fees and regulations restrict competition by making it more difficult for people – even those who would be skilled groomers – from entering the business.

Less competition means less pressure to offer the best services and the lowest prices. The higher prices that would result from licensing would cause many people to resort to do-it-yourself grooming, which may result in more pain to pets since the owners are not trained to do this. For the same reason, there are more electrocutions where there are stricter licensing regulations for electricians and poorer dental health where dental licensing requirements are overly stringent.

[. . .]

Some may still cry, “There ought to be a law!” but groomers who harm pets can already be prosecuted under laws against negligence and fraud, as with any other case of poor service or breach of contract. This does not mean that there are, or should be, no standards for groomer competence. Voluntary (private) certification allows practitioners who meet the criteria of a certification organization to advertise their certification to signify to customers that they offer high-quality services, while leaving consumers and noncertified practitioners free to do business if they so choose. Pet grooming organizations such as the National Dog Groomers Association of America, National Cat Groomers Institute of America, International Professional Groomers and International Society of Canine Cosmetologists have their own testing and other certification requirements and offer workshops, seminars and other events to provide groomers and consumers more information about their members’ qualifications. The use of referrals from veterinarians or friends and resources such as Yelp, Angie’s List, and the Better Business Bureau may also help to avoid many poor groomers in the first place.

See the full article here.

Related Research and Commentary:

» "California Bill Proposes Licensing for Pet Groomers"

» Occupational Licensing: Ranking the States and Exploring Alternatives

» "California Licenses Most Jobs in Nation" (Los Angeles Business Journal)

» "Lawyer Licensing Laws Lead to Higher Prices, Less Consumer Choice and Access to Legal Services"

» "Occupational Licensing and the Beard Trimming Turf War in Texas"

» "State Licensing Mandates for Movers in Illinois Increase Prices, Reduce Job Opportunities"

California Bill Proposes Licensing for Pet Groomers

Posted on February 3, 2012, 5:14pm | Adam Summers

It appears that California truly has gone to the dogs. The state is facing a $9.2 billion budget deficit, a $10 billion unemployment insurance fund deficit, and unfunded pension obligations in the range of $400 billion to $500 billion, yet the busybodies in the state legislature are seeking to add another occupation to the long list of those burdened by unnecessary state regulation: pet grooming. As I noted in a 2007 study, Occupational Licensing: Ranking the States and Exploring Alternatives, California already "leads" the nation by requiring licenses for some 177 occupations, almost double the national average. The new bill, SB 969, proposed by state Sen. Juan Vargas (D-San Diego), would establish licensing standards for dog groomers and dog grooming schools under the Veterinary Medical Board. Violations of the regulations could result in fines of $500 to $2000 and/or imprisonment of 30 days to a year in jail.

The bill would establish minimum age and education requirements for potential licensees (18 years old and at least a 10th grade education), impose licensing fees, and charge the licensing board with developing standardized written and practical demonstration tests for applicants. In addition, it would require an inspection of every licensed pet groomer in the state each year and mandate that licensees maintain detailed records for two years ("including a list of any chemicals used while performing the services and any medical conditions discovered during the performance of services"). Moreover, as a San Diego Union-Tribune article about the bill notes, the legislation has drawn criticism from groomers because it would also force them to individually cage animals that would be calmer if they were not confined.

The Orange County Register today ran an editorial that effectively illustrates the fallacies of licensing pet grooming. As I told the Register,

"Licensing pet groomers is not the answer to poor-quality grooming services. Imposing a top-down state bureaucracy will likely not improve pet safety or grooming quality, but it will result in less competition, less choice for consumers, and higher prices. Higher prices will arise from the reduced competition and the need for practitioners to offset the cost of compliance with unnecessary regulations. When there is less competition, there is less pressure on practitioners to offer the best prices and service quality."

The artificially higher prices caused by licensing would have some other unintended consequences, such as encouraging people to save money by clipping their pets' nails or cutting their hair themselves. Since the average person is not as trained as a pet groomer (licensed or not), this will result in more pain—not less—for pets.

If dog groomers want to get together and form their own voluntary certification organization, that is great. They could set their own standards and have the organization certify those that meet those standards. This would signify to customers that the certified practitioners offer a higher standard of service while still maximizing the freedom and choice of both consumers and groomers that elect not to be certified.

There will always be some bad pet groomers, with or without licensing. In cases where pets are injured or the groomer otherwise does not meet reasonable standards of service, there are already laws on the books against negligence, fraud, breach of contract, and causing harm to people or property. Licensing would simply create an illusion of competence (and an army of bureaucrats) while increasing prices and reducing competition and consumer choice.

Related Research and Commentary:

» Occupational Licensing: Ranking the States and Exploring Alternatives

» "California Licenses Most Jobs in Nation" (Los Angeles Business Journal)

» "Lawyer Licensing Laws Lead to Higher Prices, Less Consumer Choice and Access to Legal Services"

» "Occupational Licensing and the Beard Trimming Turf War in Texas"

» "State Licensing Mandates for Movers in Illinois Increase Prices, Reduce Job Opportunities"

The Social Cost of Taxi Regulation: $1 million Per License

Posted on October 20, 2011, 9:24pm | Samuel Staley

We've written before on the inefficiencies, corruption, and social costs of taxi regulation, but we can finally put a number on some of the total social costs thanks to the blatantly anticompetitive policies of New York City: $1 million per license. The New York Times is reporting that two medallions, the tin plates that indicate someone has permission to operate a taxi in New York City, were sold for $1 million a piece. As the Times reports:

"The sale was the culmination of decades of astonishing growth for the humble medallion, which is literally nailed to the hood of every yellow cab in the city. When New York issued its first batch of medallions in 1937, the going price was $10 even, or $157.50 in today’s dollars.

"Some perspective: The Dow Jones industrial average has risen 1,100 percent in the last 30 years. In the same period, the value of a taxi medallion is up 1,900 percent. That return beats gold, oil and the American house.

"Sky-high prices and million-dollar deals seem a far cry from the medallion’s early days; when World War II came around and demand for taxis dropped, many drivers simply returned their medallions to the city to avoid the annual $10 renewal fee."

These prices are what economists would call monopoly profits; they are a windfall to owners of the medallions because they are completely unconnected to the economic activity of meeting consumer demand. This market "value" is solely a result of government restrictions on the supply of taxis well below demand, pushing their market value beyond what would be sustainable in a real market. In taxi markets with free entry, licenses and permits usually are a couple of hundreds bucks. So, since 13,237 taxis are licensed to operate in the Big Apple, the New York Taxi and Limousine Commission has manipulated the market to create faux wealth of $13 billion (at the going rate). This is not market-created wealth; it's artificial wealth that only benefits those with the connections and resources capable of enough securing a medallion.

Since this is not wealth created by suppliers productivity deploying their resources to meet consumer demand, it's also represents a deadweight loss to society. So, in round numbers, the social cost of taxi regulation in New York is upwards of $13 billion even without counting the inconveniences created by the shortage of taxis, the lack of innovation in service delivery, and other ills associated with this highly regulated industry.

Colorado Public Utilities Commission Dabbling in Taxicab Regulatory Reform

Posted on August 11, 2011, 7:53pm | Harris Kenny

Yesterday Colorado’s Public Utilities Commission (PUC) implemented recent legislature-initiated taxicab regulatory reform, according to Cathy Proctor of the Denver Business Journal.

PUC officials eased taxicab passenger-pickup restrictions in accordance with SB 11-180. Colorado taxicab drivers can now pick up new passenger(s) anywhere within a one-mile radius, and a 20-minute drive, from when they dropped off their previous passenger(s), except at airports. Proctor explains, “Previously, [taxicabs] only could pick up passengers at designated loading zones, such as at hotels.”

PUC also implemented several nuanced changes to comply with HB 11-1198. The Denver Business Journal reports these new changes include:

• Transferring all safety jurisdiction over household goods movers from the PUC to the Colorado Department of Public Safety;
• Standardizing provisions relating to the conduct of fingerprint-based criminal history record checks, both on initial issuance and remission as a condition of continued qualification to drive for a motor carrier; and
• Requiring towing carriers to maintain workers’ compensation insurance and post a $50,000 bond to ensure payment of any civil penalties assessed by the Commission.

The Colorado Department of Regulatory Agencies (DORA) lists the new rules online here.

Legislators should be recognized for their efforts to reform the PUC, however PUC officials are essentially dabbling in reform. Yesterday's changes don't merit further evaluation because Colorado needs a significantly more robust reform effort. This past spring, heavy-handed PUC regulators prevented the aspiring startup Mile High Cab Company from opening its doors and creating jobs. Next legislative session Colorado policymakers should drastically reduce the PUC’s duties, thereby allowing taxicab companies and entrepreneurs to compete to meet consumer demand.

For more on taxicab regulatory reform in Colorado, see Reason Foundation’s recent work here, here and here.

New York City Regs Strangling Street Food Vendors

Posted on June 19, 2011, 1:46pm | Samuel Staley

Reason magazine contributing editor Michael Moynihan has an important article in the Wall Street Journal (June 18, 2011) logging the confusing, costly, and anticompetitive regulations New York City has imposed on food cart vendors in the city. Unfortunately, the full article is only available to subscribers, but Moynihan does a nice job of showing how byzantine these rules can be and the fundamentally anticompetitive nature of those adovcating for the rules. Michael writes:

"It's no surprise that the mayor who required fast-food restaurants to display the caloric content of every menu item would declaim food trucks. But while New Yorkers barely reacted to calorie counting with a shrug, the popular haute-cuisine trucks, where the adventurous eater can find gianduia-flavored ice cream, Korean "tacos," and BBQ pulled pork Belgian waffles, is a rather different matter.

"The business of selling street food doesn't lack for regulation. In Manhattan—and most cities in the U.S.—the legal proscriptions governing food trucks are baffling, and the barriers to entry for new businesses predictably onerous. To sell food cooked in a truck, one must possess a vendor license. But the city caps these at around 3,000, with a waiting list just as long. And with sometimes as few as a dozen new licenses dispersed in a year (via a lottery system), for most this means waiting a dozen years to start a legal operation.

"Baylen Linnekin, executive director of Keep Food Legal, a Washington, D.C.-based advocacy group devoted to "culinary freedom," says that the regulatory hurdles faced by truck owners ensure the creation of an underground economy. Because the City Council has so limited the number of permits, often "the only way to open up a new truck is to pay a bribe and buy a permit on the black market." While it's technically illegal to resell permits, Mr. Linnekin estimates that over half the city's trucks either "rent" or purchase permits, which can cost upwards of $20,000."

Reason Foundation has researched this issue extensively in cities across the nation. One of more thorough studies is Giving a Let Up to Boostrap Entrepreneurship where we examined local regulations in Boston, Atlanta, Los Angeles, and Dallas. We've also used taxicab regulation to demonstrate the perverse and highly political nature of these local regulations (see here and here).

Washington Post Weighs in Against Taxi Medallions

Posted on May 23, 2011, 10:10am | Samuel Staley

Great news from Washington, D.C.! The Washington Post editorialized against adopting a medallion system to regulate the District's taxis as some councilmembers have recommended. In an editorial (May 21st), the editors noted:

There are drawbacks to a system that restricts supply and creates barriers to competition. A memo dated Jan. 4, 2010 by Fitzroy Lee, a deputy in the CFO’s Office of Revenue Analysis, detailed the study of medallions in New York, Boston, Chicago, San Francisco and Miami-Dade County. Researchers found consensus among economists that medallions benefit a small group of citizens, namely the first round of recipients, at the expense of consumers and drivers without medallions. “Evidence from other jurisdictions,” Mr. Lee wrote, “suggests that limiting entry into a taxicab market leads to a decline in overall service: consumers pay higher fares, wait longer for an available taxicab, face more service refusals, and receive less service than they would otherwise.”

We've also commented extensively on taxi regulation and the proposed Washington, D.C. legislation in particular. See here for my oped in the Washignton Post (April 1, 2011) and an extended follow-up blog post here (April 14, 2011). I have commented on the corrupt nature of taxi regulation here (also in the Washington Post) and here.

The DC Taxi Medallion Hustle: Round 3

Posted on April 14, 2011, 11:04am | Samuel Staley

My article criticizing the proposed Washington, DC taxi medallion system (April 1, 2011) has predictably stirred up a few protests. In my article in the Washington Post, I argued that a medallion system would inevitably limit economic opportunity and make cabs more scarce in the neighborhoods. Now, a cab driver has challenged me, arguing that the oligopoly that would be created by system would benefit everyone. The critique is worth examining in more detail.

Of course, the author first challenges me by questioning whether I really read the ordinance carefully. This might seem like a smart debating tactic…until you read the ordinance itself (which is online).  The proposed legislation is only 16 pages long but be prepared to hire a consultant with specialized taxi industry experience to understand it. If anything, the ordinance makes the case against the proposal simply because of its complexity and lack of transparency.

For example, as currently proposed (March 2011), “The Professional Taxicab Standards and Medallion Establishment Act of 2011” creates six (6) general classes of medallions: unrestricted, restricted, low emissions vehicle, wheel chair accessible, non-district resident tags, and special events. (The term “standard” in the title is a misnomer; nothing in the ordinance has anything really tod do with performance or standards.) Since several of these permits are for individuals and companies, the number of classes is actually larger. The cap on the number of medallions for the first four classes, which serve the broad-base of everyday taxi consumers, is 4,000.

Most classes have price tiers based on whether the purchaser is an individual or company, and their current tenure as a driver/owner in the district. Drivers or companies operating in the district for more than 30 years have a lower initial statutory (non-market) price than those with between 20 and 30 years, and those with fewer than 20 years. So, there are six separate medallion prices just for Class 1, Class 2, and Class 3 cabs and companies.

All this and we’re only on page 6 of the proposed ordinance. And we haven’t even done any analysis!

More substantively, the cabbie asserts that proposed ordinance takes care of the neighborhoods by reserving a certain number of medallions for low income and “underserved” neighborhoods:

“Staley failed to note that the legislation sets aside 800 “restricted medallions.” Holders of these medallions would be required to transport to, from and within only “geographically underserved areas,” defined as Wards 7 and 8 and parts of Ward 5. Through this provision, the legislation indeed provides for service to the “poorer neighborhoods” that Staley said he was concerned about about. This omission gets to the heart of one of his major arguments against medallions: an imagined lack of service to poorer neighborhoods.”

Actually, no it doesn’t. Simply establishing intent doesn’t mean it will happen. And the truth has been that in cities that have established medallion systems with caps, the neighborhoods have suffered. The DC government cannot mandate levels of service in poorer neighborhoods (let along other higher income neighborhoods that will also not be served as well as under the current system). The author asserts without evidence that 800 cabs would be sufficient to meet the needs of these neighborhoods. I doubt it.  Denver, Indianapolis, Cincinnati, New York City and other cities found that caps led to less service in these neighborhoods. I don't see how DC is an exception. In fact, I see cabs as serving a more vital function in the lower income neighborhoods if they are allowed to compete in a free market.

The only way we can know if the cabbie's assertion is true is if a market with open and free entry is allowed to exist so that supply can rise and fall with the demand in these neighborhoods. The proposed law explicitly prevents that from happening and provides no mechanism for increasing the supply if demand is greater than they forecast. Moreover, the teired approach to allocating medallions makes it even more unlikely the market will be to adjust to changing demand at the neighborhood level. In fact, the purpose of the medallion system is to reduce supply to jack up compensation for existing drivers. In practice, however, medallion systems increase the profits for companies and vehicle owners at the expense of drivers because owners can take advantage of a less competitive market place. Drivers depend on fares which are fixed by the local government.

The driver's second argument is somewhat more obtuse:

“There are 8,250 licensed taxicabs in D.C. Until about 2003, the city usually had somewhere between 6,000 and 7,000, and 8,000 is too many. Anyone who has seen the swarms of cabs on Capitol Hill, on Pennsylvania Avenue between the Capitol and the White House, on 14th Street in Columbia Heights and in Adams-Morgan at night cannot disagree.”

Umm, yes, I can disagree, as can anyone who uses a cab and would now be faced with fewer choices and opportunities to use one under the ordinance. The proposed legislation limits the number of medallions to 4,000, significantly below the 6,000 to 7,000 cited by the author. Again, this appears like a transparent attempt to limit competition simply to improve the profits of the taxi company owners.

Argument number three:

“The purpose of the low medallion prices that would be offered to veteran drivers is to allow those of us who have sweat equity in this business to remain in it. Many of us entered this business 20 or more years ago with the reasonable expectation that we would not be regulated out of it. We survived the crime waves of the 1970s, the crack epidemic of the 1980s and another crime wave of the early 1990s. It would hardly be fair to tell us that, now that things are better, the business is not for us.”

At least he’s being candid here. The medallion system will significantly jack up prices for anyone who wants to drive in the District. So, veteran drivers carved out an exception so that they can continue driving even though new entrants, particularly low income drivers, will likely be financially shut out.

In the end, none of these driver’s arguments undercut my main points:  A cap on taxis, and a medallion system in particular, does little more than enrich large companies at the expense of non-vehicle owning drivers and neighborhoods. They create oligopolies that will naturally be exploited by the existing companies at the expense of new entrants and drivers who don't own their vehicles. The cap will ensure that the high margin trips in downtown, on Capitol Hill, in high-income neighborhoods, and to the airport will receive preference from drivers as they take advantage of the artificial limit on supply. Consumers and most drivers lose out in the end.

Why Taxi Medallions Are Bad for Neighborhoods

Posted on April 4, 2011, 8:55am | Samuel Staley

We've commented extensively on taxi regulation in cities and states on this blog, and I take aim squarely and the destructive effects of taxi madallions on neighborhoods in an oped published in the Washington Post over the weekend. Taxi medallion systems explicitly limite competition, and when competition is limited, the neighborhoods suffer. I write, in part:

"There goes the neighborhood — literally — as taxi drivers inevitably would abandon low-margin trips in outer neighborhoods such as Anacostia to concentrate on the milk runs to the airport or serve higher-income customers along K Street and Capitol Hill.

"That conclusion may seem exaggerated, but other cities that have restricted taxicab availability have had that kind of result. It’s simple economics. Drivers focus on fares that generate the highest return, and their ability to do so will increase as competition becomes more limited.

"Medallions are metal plates issued to vehicles authorized to operate as taxis. Medallions have been around for decades in some cities and were widely adopted during the 1930s as an attempt to limit competition from new cab companies.

"The big winners in a medallion system are large existing companies. Once medallion systems are put in place and the supply is restricted, as the D.C. ordinance explicitly aims to do, the price of medallions goes through the roof. In New York, medallions sell for upward of $600,000. The going price in Boston is $400,000. Even in small taxi markets such as Columbus, Ohio and Minneapolis, taxi medallions and licenses have sold for more than $25,000."

Fortune-Tellers in Salem, Mass. Didn't Foresee Greater Competition from Lifting Licensing Restrictions

Posted on March 30, 2011, 6:46pm | Adam Summers

In a town known for witchcraft and the paranormal, a conflict is now ensuing over psychics in Salem, Massachusetts. Long-time practitioners are upset that the lifting of a strict limit on the number of licensed psychics in the town a few years ago has led to a flood of competitors—and diminished profits.

The city started regulating fortune-tellers in 1930. During the 1970s, a perception that there were too many fortune-tellers led the city to restrict the number of psychic readers to five, plus about 11 existing fortune-tellers who were grandfathered in. The cap was lifted in 2007, and the number of licensed fortune-teller shops grew from four in 2006 to 24 in 2010 (including roughly 90 individual licensed psychics).

But many of the fortune-tellers who practiced before the ban was lifted are not happy about the new competition. The licensing cap "blocked a lot of people from coming in from all over the country during Halloween and looking to make a quick buck," Diana McKanas, owner of the Salem Psychic Center, told the Salem News. "In my observation, these people . . . are not real psychics." Never mind that, in many people's estimations, no one is a real psychic.

A Boston Globe editorial had a more humorous take on the situation: "Some of the biggest supporters of reinstating the cap come from an unlikely source: members of the clairvoyant community themselves, who say the proliferation of new psychics is threatening their businesses. (As an aside: shouldn't they have seen this coming? Just asking.)"

Although the quirky nature of the industry gives the story an entertaining twist, it is instructive about the true nature of occupational licensing: licensing is not so much about trying to protect consumers as it is trying to protect a group of existing practitioners from competition. Numerous economic studies analyzing a wide variety of industries have shown that licensing does not tend to improve product quality, and, in many cases, even reduces product quality because less competition means less incentive for practitioners to provide higher-quality services, passing licensing exams and other requirements do not necessarily mean licensees are highly-qualified, consumers seek out black markets to try to save money, or licenses give people have a false sense of security about with whom they do business, making them less careful than they otherwise would be about ensuring a practitioner's competence. On the other hand, occupational licensing regulations do make it more difficult for new businesses entering the field, which allows the existing practitioners (who are typically grandfathered in and don't have to meet the higher standards) to charge higher prices because of the reduced competition.

Some of the fortune-tellers in Salem understand how the system works, though. Christian Day is owner of the Hex and Omen occult-based stores, a board member of the Destination Salem tourist marketing organization for the city, and is described in the Globe editorial as a "local warlock." Said Day in the Globe column, "I believe that the free market should decide whether or not there are too many psychics. If we have too many, they won't make money and they leave. It's just like anything else." In addition, if "you cap the number of licenses and keep those people with licenses protected you essentially guarantee that people with lesser talent are protected." I wouldn't want to speculate on Day's skills as a warlock, but he sure seems to understand economics.

Alas, the elimination of the fortune-teller license cap was not a total victory for free markets. When the cap was repealed in 2007 the city installed a new licensing scheme. According to the Salem News article, "The new licensing process includes a criminal background check, a check into consumer complaints, whether the business is in good standing with the secretary of state and often some light testimony in front of the Licensing Board." [Emphasis added] Testimony in front of the licensing board? Really? What do they have them do, read the board members' palms?

Asked about how Salem came up with the new regulations, city solicitor Elizabeth Rennard told the Salem News, "We found very few places (with psychic ordinances) when we were looking for a model to use here." Maybe that should have been an indication that licensing fortune-tellers is unnecessary and wasteful, but the city was not to be deterred. Not to worry, it ended up modeling its law after San Francisco's. (That figures.)

Say what you will about psychics, it seems the real scam is the onerous and pointless regulations foisted on businesses by the City of Salem.

» For a more in-depth discussion of occupational licensing issues and reform ideas, along with a ranking of the 50 states based on how many occupations for which they require licenses, see my study, Occpuational Licensing: Ranking the States and Exploring Alternatives.

Boston Globe Advocates for Taxi Deregulation

Posted on March 25, 2011, 12:20pm | Samuel Staley

The Boston Globe (March 25, 2011) has come out in favor of deregulating taxicabs in Boston. Boston, like many large cities, uses "medallions" (permits to drive taxis) to limit the number of cabs that circulate in a city. In almost every city that has adopted the medallion system, a shortage of taxis exists, driving black market prices to hundreds of thousands of dollars. The economic effects are pernicious, locking out competitors and needlessly driving up prices. For more on Boston's debate, see my blog post here.

As the Globe editorial observes:

"The city [Boston] could start by reforming its anachronistic licensing system, which caps the number of cabs at 1,825. The cap made sense when it was put in place during the Great Depression, because it protected cab operators threatened by waves of out-of-work men flooding the streets with cheap rides. But back in the 1930s, most taxi drivers owned their own licenses — known as “medallions.’’ Today, a great many medallions are owned by investors who lease them to drivers at high rates. It’s these investors, many of whom do not even live in the area, who reap the benefits of the regulatory system."

Many regulators and taxi company owners (who benefit directly from inflated prices) bizarrely argue that deregulation would be an infringement on their propert rights--as if the monopoly rents created by bad public policy are a legal entitlement. Fortunately, the Globe did a little research and found that these artificially high prices are not entitlements. The editorial continues:

"Mark Cohen, Boston’s chief taxi regulator, has acknowledged that this regulation system [medallion system] needs to change. But he has long maintained that the city’s hands are tied. By some accounts, it would be illegal for the government to intentionally devalue licenses that are already on the market. But according to Lee McGrath, an attorney who successfully defended Minneapolis’s 2007 effort to deregulate its taxicab industry, federal law would allow Boston to increase the number of medallions, even if new licenses end up driving down the value of existing ones. The city should reinvestigate its legal options, and Cohen should consider a plan that would increase the number of medallions by at least 2.5 percent every six months over the next five years, a schedule that would allow the market to adjust gradually."

For more on taxi deregulation, read an excellent survey by Adrian Moore and Ted Balaker on whether economists "reach a conclusion" on taxicab regulation in the professional watchdog journ EconJournal Watch (January 2006). Also, Reason Foundation's study on inner-city entrepreneurship, "Giving a Leg Up to Boostrap Entrepreneurship," surveys barriers to entrepreneurship in several cities, with a section devoted to taxicabs. My colleague Harris Kenny has been riffing on this topic in Denver, too.

Hypocritical Bureaucrats Stifle Entrepreneurship in Colorado

Posted on March 24, 2011, 9:07pm | Harris Kenny

Seven months ago the Colorado Public Utilities Commission (PUC) denied start-up firm Mile High Cab Company the right to compete in metro Denver’s taxicab market. According to David Migoya of The Denver Post:

Mile High (Cab Company) was started in 2008 by a number of immigrants from western and Southern Africa disgruntled with the city’s largest cab companies claiming they could make more money if they had their own firm. As the process wore on, Mile High Grew from 40 co-owners to 150.

A PUC administrative law judge issued an 85-page ruling (that was later sustained by the commission at-large), which denied Mile High’s request to operate 150 cabs in the metro Denver area, as reported by Vincent Carroll of The Denver Post. The judge ruled that if Mile High opened and added an additional 150 cabs to the taxicab market, the consequence “could very well result in impaired services, higher rates, and ultimately the type of destructive competition this commission is charged with protecting against.” Mile High has appealed the ruling, and a hearing is set with a Denver District Court for June.

Last week the same PUC judge approved requests by incumbent firms to operate 300 additional cabs in metro Denver. PUC’s hypocritical decision demonstrates what critics have long argued: the PUC is a state-created bureaucracy that limits consumer choice, criminalizes competition and in the end only serves to protect the interests of incumbent firms. In fact, marketing professional Edward Harvey testified in a PUC hearing that Denver has .46 cabs per 1,000 population, which is dramatically lower than comparable cities such as Boston, Philadelphia and Detroit that have as many as 3.75 per 1,000 population.

Over the years, Colorado has taken enforcing taxicab regulation to unbelievable lengths. (Special thanks to the Aspen Daily News for tracking this story.) 75-year-old Aspen-resident Phil Sullivan operates a free taxicab service, and while he does not collect fares he does accept tips. In 2008, undercover state employees conducted a sting operation where they successfully lured Sullivan into accepting a tip from them. Investigators from Colorado’s PUC pursued legal action shortly thereafter, levying a $12,100 fine against him that he refused to pay. Sullivan was unfazed by the state’s legal action and continued to offer free rides to Aspen residents. Earlier this month (nearly three years later) Sullivan was tried and convicted to a 15-day jail sentence for violating the state’s taxicab regulation. After being sentenced and led out of the courthouse, Sullivan told the Aspen Daily News that he plans on resuming his service after his release from prison.

Colorado's PUC is a bureaucracy that has gone off the deep end enforcing taxicab regulations that need to be reformed by the legislature. (The Colorado legislature has attempted—and failed—to act on this for years, for more see my recent Reason.org commentary here). The legislature’s most recent attempt, SB 11-065, passed out of the Senate Business, Labor and Technology Committee, but failed in the Senate Appropriations Committee. (For more on SB 65, see here and here.)

Its high time Colorado policymakers legalize competition in the taxicab market, because the ambiguous status quo harms both entrepreneurs and residents alike. For more on anti-entrepreneur taxicab regulation, see my colleague Sam Staley’s recent work here, here and here.

D.C. Council Takes Aim at Taxi Entrepreneurs

Posted on March 18, 2011, 4:15pm | Samuel Staley

Some on the District of Columbia's city council really have it out for entrepreneurs. The city simply has too many of them. Why else would they consider an ordinance that would not only limit the number of taxis driving in the city but also substantially increases the cost to prevent new companies from competing?

The "Professional Taxicab Standards and Medallion Establishment Act of 2011" has little or nothing to do with standards and everything to do with extending city control over one of the most dynamic and entrepreneur-friendly businesses in the district. The Medallion Establishment Act would cap the number of taxis at 4,000 and give preferences to politically determined classes of vehicles. The Act would also create six classes of taxicabs, each of which would have to pay a different price for the medallion ranging from $1,000 to $5,000.

What may be most striking about this ordinance is that D.C. council members must be well aware of the pernicious effects medallion systems have had in other cities. In New York City, medallions sell for $641,000 for an individual and nearly one million dollars for a corporation.  In Boston, medallions sell for $400,000. These prices are way out of reach finanically for drivers who often are lucky to make $30,000 a year. A medallion system will effectively create and lock-in an oligopoly of cab company owners.

This is just another example of the implicit corruption that undermines economic opportunity in cities like Washington, D.C. Medallion systems are tailor made to further entrench special interests and reduce competition, leaving the consumer standing at the curb with inferior service.

Colleague Harris Kenny has also been following taxi regulation.

A Cause of Health Care Costs You Rarely Hear About

Posted on March 13, 2011, 5:58pm | Adrian Moore

I was talking about government run vs private health care with a Canadian friend the other night when, after listening for a bit, another friend chimed in that we were ignoring the doctor monopoly.  He was right.  In these discussion we typically forget that the medical profession has the oddest and strongest monopoly power in the private sector in the US.  Those who are already doctors have ironclad control over who else gets to be a doctor. Meaning they have more control over competition than any other industry I know of.  It doesn't take a rocket scientist, or a rock-star economist, to realize that limiting the supply of doctors might be why they make so much money, and why we pay so much money, for healthcare services.

Shirley Svorney has been writing about the economics of medical licensing for years.  Check out this podcast interview in which she discuss its pernicious effects.

Taxicab Reform Advances in CO Senate

Posted on February 14, 2011, 4:04pm | Harris Kenny

Last Wednesday Colorado Senate Bill 11-065 passed unamended through the Senate Committee on Business, Labor and Technology on a 4-3 roll call vote with bipartisan support. The bill is now in the hands of the Committee on Appropriations.

SB 11-065 would reform the regulations in place that determine which companies are allowed to compete in Colorado's market for taxicab services. The bill would allow any company that meets a series of basic requirements to operate, rather than the current law that requires proving to the Colorado Public Utilities Commission (PUC) that additional competitors would not be "detrimental to the public interest."

Face The State reports that two representatives from Union Taxi testified in support of the bill. Union Taxi is an incumbent firm, and is the most recent firm to receive approval from PUC to compete. Abdi Buni, one of Union Taxi's founders said in his testimony:

If Union, God forbid, should fail because of a new company so be it... (Union Taxi doesn't) deserve to live if (it) can't compete."

I will continue to follow this bill through the Senate, so check back for updates in the coming weeks.

For more on recent taxicab regulatory reform efforts in Colorado and SB 11-065, see my recent Reason.org commentary here.

Colorado Takes Another Swipe at Taxicab Regulatory Reform

Posted on February 1, 2011, 1:40pm | Harris Kenny

For decades, the Denver metropolitan area has suffered from a lack of competition in the market for taxicabs.

In January 2011 Colorado State Senator Ted Harvey (R- Highlands Ranch) introduced SB 11-065 to increase competition to give Colorado residents more choice over services and quality, by opening up the taxicab market to entrepreneurs intent on providing better and more complete services.

Sen. Harvey recently said (of the bill), "Colorado government needs to stop the practice of picking winners and losers in the private sector," according to The Denver Post.

SB 11-065 is the latest attempt to loosen the grip of state regulators on the market for taxicabs and it's important to consider similar past efforts to put SB 11-065 into context. Earlier today I posted a commentary on the recent history of taxicab regulatory reform in Colorado that is available here on Reason.org.

Licensing bloggers in Philadelphia; City requires $300 business license

Posted on August 24, 2010, 3:47pm | Adam Summers

Here's a good example from the City of Philadelphia about how to kill jobs and regulate the economy to death during an economic correction—or any other time, for that matter. The city imposes a $300 "business privilege license" for any "activity for profit," regardless of whether or not an actual profit was made. Thus, individuals who post blogs on their sites and collect some chump change from online ads that appear on the page must pay the fee, even if it far outweighs their earnings. Freelance writers are similarly subject to the city license fees, plus taxes on their profits, in addition to their state and federal income taxes.

Philadelphia is even going after people that simply blog as a hobby, not a full-time job. As related in an article from the Philadelphia City Paper,

For the past three years, Marilyn Bess has operated MS Philly Organic, a small, low-traffic blog that features occasional posts about green living, out of her Manayunk home. Between her blog and infrequent contributions to ehow.com, over the last few years she says she's made about $50. To Bess, her website is a hobby. To the city of Philadelphia, it's a potential moneymaker, and the city wants its cut.

In May, the city sent Bess a letter demanding that she pay $300, the price of a business privilege license.

"The real kick in the pants is that I don't even have a full-time job, so for the city to tell me to pony up $300 for a business privilege license, pay wage tax, business privilege tax, net profits tax on a handful of money is outrageous," Bess says.

If there was any doubt that government acts as a parasite on the productive (i.e., private) sector of the economy, examples of such licensing schemes expose their true nature. Far from acting to protect the lives and property of its citizens, this is merely a money grab for an insatiable government that can't find enough money to spend and must find new and interesting ways to take it from its taxpayers.

Obvious examples of unfairness and a lack of common sense like the one above notwithstanding, the whole notion of a "business privilege license" is absurd and a violation of one's right to earn an honest living. The ability to operate a business and provide for oneself is a fundamental individual right, not a privilege to be granted by government.

As economist and author Murray Rothbard explained in his "libertarian manifesto," For a New Liberty, “If a man has the right to self-ownership, to the control of his life, then in the real world he must also have the right to sustain his life by grappling with and transforming resources.” In other words, if we are to have the unalienable right to life, then we must also have the right to sustain our lives through the use of our labor. Adds Rothbard, "Since each individual must think, learn, value, and choose his or her ends and means in order to survive and flourish, the right to self-ownership gives man the right to perform these vital activities without being hampered and restricted by coercive molestation."

Business and occupational licensing regulations are just another example of such coercive molestation. If governments truly want to help improve the economy, they can best do it by simply removing these barriers to work and entrepreneurship and allowing greater economic liberty to naturally lead to greater economic prosperity.

(Thanks to Mark Hemingway's Washington Examiner post for covering the Philadelphia bloggers licensing issue as well.)

For more information on how occupational licensing leads to higher prices and fewer choices for consumers, reduced economic liberty and job opportunities, poorer service quality, and reduced competition (for the benefit of existing businesses that want to keep out competitors), see the following:

• My policy study, Occupational Licensing: Ranking the States and Exploring Alternatives
• My book chapter, "Licensing Lawyers: Failure in the Provision of Legal Services," in The Pursuit of Justice: Law and Economic of Legal Institutions
• "California Licenses Most Jobs in Nation," an op-ed I wrote for the Los Angeles Business Journal

Lawyer Licensing Laws Lead to Higher Prices, Less Consumer Choice and Access to Legal Services

Posted on June 12, 2010, 3:56pm | Adam Summers

In a previous post I noted the publication of a new book that I contributed to that discusses problems with the U.S. legal system and how to resolve them. The Pursuit of Justice: Law and Economics of Legal Institutions is a thoroughgoing analysis of the bureaucratization and politicization of the U.S. legal system and how the law works in practice rather than in theory. The book looks specifically at how decision makers in the law—judges, lawyers, juries, police, forensic experts, and more—respond to economic incentive structures. Here is a synopsis of the book from the Independent Institute, which published the book with Palgrave Macmillan.

My chapter, "Licensing Lawyers: Failure in the Provision of Legal Services," analyzes how occupational licensing and other regulatory burdens increase the prices of legal services, reduce competition and the quality of services provided, decrease consumer choice and access to legal services, and otherwise distort the market for legal services. Below is an excerpt from this chapter.

While occupational licensing regulations and unauthorized practice of law statutes are billed as a means of protecting the public from negligent, unqualified, or otherwise substandard practitioners, in reality, they are simply a means of using government regulation to serve narrow economic interests. Numerous studies have revealed little, if any, improvement in service quality from compulsory licensing. Oftentimes, licensing laws actually reduce service quality, as consumers make decisions based on a false sense of security regarding a licensee’s state- or bar-association-sanctioned qualifications, and the artificially high prices caused by licensing causes more people to perform their own legal services that they may not be qualified to undertake, or forego legal action altogether when it is called for.

Some have argued that because the law is so complex, and the gap between the consumer’s and attorney’s knowledge of the law is so great, we must have other lawyers determine and enforce proper quality standards. Besides being incredibly paternalistic, this notion ignores the fact that people are constantly purchasing products and services of which they initially have no specialized knowledge and finding ways to inform themselves. So long as there is demand for such information, it will be provided in a free market.

Unauthorized practice of law prohibitions, regulations on business practices such as advertising restrictions, the lack of reciprocity agreements among jurisdictions, and the virtual monopoly control of legal education by the ABA are designed not to protect consumers, but rather to protect existing business interests from competition. This suppression of competition damages the business climate, stifles innovation, and allows licensed lawyers to charge higher fees for services than they would be able to in a truly free market.

Regulatory barriers to entry deny many the freedom and opportunity to earn an honest living in the occupation of their choosing. It is not only would-be workers and entrepreneurs who are hurt by licensing laws, however. The rigid, one-size-fits-all standards imposed by the government (and supported by state bar associations) also harm consumers by reducing consumer choice. Individuals have different wants and needs, and even different levels of risk tolerance. They are better able to determine their own needs and protect their own interests than politicians or bureaucrats far removed in the halls of the state capitol or city hall. In the event of someone being taken advantage of or otherwise wronged by a dishonest or incompetent lawyer, the courts are available to punish wrongdoers and make the victims whole.

In light of the enormous economic losses to society inflicted by occupational licensing regulations, and the destructive effects these laws have on consumers and aspiring lawyers—not to mention individual liberty in general—UPL statutes and other mandatory licensing regulations should be abolished. Private-sector alternatives such as voluntary certification and reputational information would allow consumers to obtain valuable information about attorneys and legal services while leaving them free to choose to do business with those who best meet their needs. In a true free market for legal services, one could expect greater specialization, more low-cost legal clinics, and more innovative forms of alternative dispute resolution, such as expanded use of arbitration and mediation services. The powerful free-market incentive to maintain a solid business reputation and the existence of the legal system to address malpractice or other wrongdoing are all that is needed to protect consumers.

Let me leave you with a favorite quote of mine on the subject of occupational licensing from James Madison:

"That is not a just government, nor is property secure under it, where arbitrary restrictions, exemptions, and monopolies deny to part of its citizens that free use of their faculties, and free choice of their occupations."

— James Madison, “Property,” National Gazette, March 29, 1792

Legal System Problems and Solutions Discussed in New Book

Posted on June 12, 2010, 3:18pm | Adam Summers

I am pleased to announce the publication of a book to which I contributed called The Pursuit of Justice: Law and Economics of Legal Institutions.  Here is a synopsis of the book from the Independent Institute, which published the book with Palgrave Macmillan (see the link for a more detailed description with chapter summaries):

Judges, lawyers, juries, police, forensic experts, and others who work in the legal system respond to incentives. As in business and politics, incentives shape the outcomes of the legal system: they can either support the pursuit of justice—or they can undermine it, leading to wrongful convictions, frivolous lawsuits, higher attorney fees, restricted access to the courts, political interference, and government corruption. To improve our legal system significantly we must therefore first seek to understand precisely how our institutions structure the incentives that decision-makers face.

The Pursuit of Justice: Law and Economics of Legal Institutions, edited by Edward L. López, does exactly that. It shows why faulty incentives lie at the heart of numerous failures of the U.S. legal system. Rather than the romanticized version of the law as portrayed in television dramas and in much academic research, it portrays the legal system as it actually performs in practice. This realism, in turn, provides the basis for reform proposals in a host of areas—from fingerprinting to criminal sentencing, from lawyer licensing to judicial selection, and from eminent domain to wealth transfers via class-action lawsuits.

“The Pursuit of Justice is a realistic yet hopeful study of legal institutions, which as a whole provides a rigorous analysis of an array of topics and argues for reform of currently socially wasteful aspects of the law,” López writes in the book’s introductory chapter.

The book’s strength comes in part from the inspiration and analytical toolkit provided by public choice theory, traditionally the economic study of politics, as Robert D. Tollison explains in his foreword to the book. “As the original generation of public choice and law and economics scholars fade into the history of economic thought, a new generation steps up to carry on, defend, and extend the hard-earned intellectual gains,” writes Tollison. “That is why reading The Pursuit of Justice is such a refreshing intellectual experience.”

With chapters written by economists and law professors, The Pursuit of Justice offers a wealth of cross-disciplinary insights to help us understand—and improve—the performance of the U.S. legal system. The book covers five broad topics: the capture of the law by private interests, judicial selection methods, forensic science administration, eminent domain, and the law as a means of wealth redistribution.

Horse Dentists Harassed by State Licensing Boards

Posted on April 30, 2010, 5:32pm | Adam Summers

In the spirit of tomorrow's Kentucky Derby race, I thought an equestrian post would be appropriate.

A report called Bureaucratic Barbed Wire: How Occupational Licensing Fences Out Texas Entrepreneurs by the Institute for Justice, a libertarian public interest law firm, explains how government licensing fees and other requirements harm both entrepreneurs and consumers by raising the costs of doing business, thereby pricing some would-be businesspeople out of the market, reducing competition, and resulting in higher prices (and profits for the existing practitioners, who are the chief lobbyists and beneficiaries of such laws).

As the report's author, Wesley Hottot, explains,

The trouble is occupational licensing—when entrepreneurs must secure the government’s permission before practicing a trade. This means Texans must often jump through a series of irrational, arbitrary and costly hoops merely to practice an innocuous trade, such as braiding hair or repairing a computer. The state now requires many entrepreneurs to obtain unnecessary and expensive education, wade through confusing and often conflicting administrative rules and pay harsh fees (and even face jail time) for the privilege of going into business. Occupational licensing is making it harder—much harder than it needs to be—for Texans to open a business, create well-paying jobs or switch careers.

The number of occupations licensed by the state of Texas has multiplied twelvefold in less than 65 years. There were only 43 non-alcohol-related trades that required licensure in 1945; today there are 514. These newly regulated industries include such diverse pursuits as athletic trainer, geoscientist, air conditioner technician, funeral director and mold assessor, among many others.

Now for the horse-related part. One of the occupations that requires a government license in the State of Texas concerns horse care. Horses' teeth can grow into sharp points that can cut their cheeks or disrupt their chewing rhythms. To correct this, some have developed the skill, called teeth floating, for filing down the teeth. Veterinarians, who, no doubt, have lost business to these horse dentists, have complained to the Texas Board of Veterinary Medical Examiners, which has ordered a couple of dozen floaters who advertise dental services in the state to cease and desist. (The practice has also raised the ire of veterinarians in other states, such as Oklahoma and New Mexico.)

One such horse dentist miscreant is Carl Mitz, who estimates that he has performed roughly 100,000 teeth-floating procedures in 30 states, charging about $50 for a standard, 3-minute procedure. In response to the state licensing board's threats, Mr. Mitz and several other unlicensed practitioners have decided to fight back.

As described in a Wall Street Journal article about the dispute,

Mr. Mitz and three fellow floaters have responded with a suit accusing the board of violating the state constitution: specifically, Article 1, Section 19, which holds that "no citizen of this state shall be deprived of life, liberty, property, privileges or immunities, or in any manner disfranchised, except by the due course of the law of the land."

Regulating teeth floating, they say, deprives them of their right to earn an honest living, which is what they believe this clause explicitly protects.

[. . . ]

Requiring floaters to get a veterinary degree "is like saying you need to become an architect in order to work as a carpenter," says Tom Allen, a Missouri floater who also happens to be a licensed vet.

While veterinarians may make emotional appeals for mandatory government licensing for the sake of horses' health, there is no evidence that procedures performed by licensed veterinarians are any better, or safer for the animals, than those by unlicensed teeth floaters. After all, any teeth floaters that provided shoddy service or harmed customers' animals would soon find themselves out of business. No, as with all other licensing rackets, it's all about the money. Veterinarians simply do not want to lose business to their unlicensed competitors. Those cease-and-desist threats have already succeeded in driving a number of floaters out of business. This just goes to show that occupational licensing laws are all about protecting special interests, not the public interest.

» For more on occupational licensing, including a ranking and analysis of licensing laws in all 50 states, see my study, Occupational Licensing: Ranking the States and Exploring Alternatives.

Economy, Bureaucracy, Minimum Wage Hikes Sink Federal Teen Jobs Program

Posted on September 29, 2009, 9:51pm | Adam Summers

A federal teen jobs program has not fared well, according to a recent Associated Press article. Almost one-quarter of the 297,169 youths who participated in the $1.2 billion Workforce Investment Act summer jobs program for teens, which was a part of the administration's economic stimulus programs, did not end up getting jobs. Youth unemployment rates for those aged 16 to 24 years soared to 18.5% in July, the highest rate in that month since 1948.

Of course, the recession played a large role in teen unemployment, as layoffs or the desire to earn some extra family income led adults to compete with teens for low-paying jobs.

Massachusetts officials said they had trouble placing teen job-seekers with private employers, many of whom opted out of the program to hire experienced older workers or young college graduates. Labor officials in other states said such problems were common.

"It's kind of hard to convince companies to hire teens for summer jobs when they're laying off their adult workers," Mary Sarris, who heads the North Shore Workforce Investment Board in Salem, Mass. "This is the worst summer we've ever seen."

This begs the question: Why did the administration think it was a good idea to fund an expensive jobs program for teens when adults are struggling to find work?

Economic conditions were not the only problem, however, as the program was also hampered by bureaucratic missteps.

In Pennsylvania and Connecticut, bureaucratic holdups kept some young workers from entering training programs until July, cutting into summer job opportunities, the AP's review found. In California, which received about 16 percent of all funds nationwide, less than half the participants in all stimulus-funded youth job programs reported getting jobs by the end of July, the most recent month for which state and national youth employment figures are available.

"Things are still totally chaotic with this program," said Rachel Gragg, federal policy director for The Workforce Alliance, a Washington-based group that advocates for more national job training funds. "In many communities they will tell you that they are still struggling to understand where the money is and where it is coming from."

[. . .]

In November, California auditors cited a litany of financial problems at the Los Angeles County Department of Community and Senior Services, including overpayments to its director and $1.27 million in questionable costs that the agency still hasn't fully accounted for.

The agency received nearly $15 million in stimulus funds for youth jobs training this summer. Officials said the director's salary had been adjusted, other accounting problems corrected and about 5,400 participants found jobs.

"There are so many passthroughs before this program actually turns into money that helps the population it's intended to help that it's almost criminal," said Laura Chick, who was appointed inspector general by Gov. Arnold Schwarzenegger to watch over California's stimulus funds. "If the local board isn't watching what they're doing, even less money is getting to where it's supposed to go, especially if it is being siphoned off to pay for administrative expenses."

Even setting aside economic conditions and bureaucratic snafus, there is another factor in the jobs program's failure that the AP article neglected to explore: the minimum wage. While the recession is obviously the principal reason for rising unemployment, the minimum wage is a contributing factor, particularly in the restaurant and retail sectors. In a little over two years, the federal minimum wage has increased nearly 41%—from $5.15 an hour to $5.85 in July 2007, to $6.55 in July 2008, and to the current $7.25 rate in July 2009. Some states have increased it even higher.

An increase of $2.10 an hour might not sound like all that much, but it adds up in industries with large numbers of low-skilled workers, and that artificial 41% increase in a portion of a business's labor costs can be the difference between staying in business and having to close down and shed even more jobs. This is especially true during a recession when the business cannot simply pass on the cost increases to consumers.

While the minimum wage might benefit those who are able to get such jobs (and who don't have their hours cut by business owners trying to offset the added costs), what is not seen is all those who are laid off or who cannot get a job in the first place because of the minimum wage. A person who has skills worth, say, $5 or $6 an hour now has to compete with those worth $7.25 an hour for the same scarce jobs. Since the employer has to pay at least $7.25 an hour anyway, why would he ever hire the $5 an hour worker? The minimum wage has made that (potential) worker practically unemployable.

The minimum wage may sound good to those who only consider some of its benefits—and none of its costs—but it is just another barrier to work. (The same goes for mandatory occupational licensing requirements.) Such barriers to work should be eliminated in the name of individual liberty regardless of economic conditions, but their abolition is even more important during tough economic times, when increases in productive employment and entrepreneurship are needed to spur economic growth once again.

Other Resources:

» "Let's end poverty by decree! 'Living wage' laws defy basic economics and hurt intended beneficiaries" (published in the Orange County Register)

» "Minimum Wage Hike Could Hurt Working Poor More Than Help" (published in the Los Angeles Business Journal)

» "Minimum Wage, Minimum Opportunity" (Libertarian Perspective column)

» My previous policy study on occupational licensing, Occupational Licensing: Ranking the States and Exploring Alternatives, which includes a ranking of the 50 states by how many jobs they require licenses for.

California Unemployment Rate Rises to 12.2%; State Must Improve Business Climate to Combat Unemployment, Budget Problems

Posted on September 26, 2009, 11:44pm | Adam Summers

California's unemployment rate rose three-tenths of a percentage point to set a modern record of 12.2% in the month of August, according to the most recent data released by the state's Employment Development Department (EDD). The numbers reveal a troubling trend of the continued widening of the gap between the state's unemployment rate and the national jobless rate, which now stands at 9.7% (see the chart below from an Associated Press article derived from EDD data).

Source: California Employment Development Department

California's unemployment rate is the fourth-highest in the nation, trailing only Michigan, Nevada, and Rhode Island. Gov. Arnold Schwarzenegger noted that the jobless rate underscores the importance of addressing the state's economic problems, stating, "While I am pleased to see fewer jobs lost, my administration will not rest until job growth resumes and employment returns to normal."

If the governor is serious about his statement, California must improve its poor business climate in order to foster job creation and economic growth. As George Will reported in a recent column, California's job growth rate since 2000 is nearly 20% below the national average. California has ranked at or near the bottom in numerous business climate and economic freedom indexes. The American Legislative Exchange Council's 2009 Rich States, Poor States study, which reports the results of the ALEC-Laffer State Economic Competitiveness Index, ranked California 43rd in terms of its economic outlook. The state suffered from low rankings in categories such as Recently Legislated Tax Changes (data is for 2007 and 2008 so it does not even include the $12 billion in new taxes passed in February 2009) -- 40th, State Liability System (tort litigation treatment, judicial impartiality, etc.) -- 44th, State Minimum Wage ($8.00/hour) -- 48th, Top Marginal Personal Income Tax Rate (10.3%) -- 49th, and Personal Income Tax Progressivity -- 50th. The Freedom in the 50 States index of personal and economic freedom, published earlier this year by the Mercatus Center at George Mason University, ranked California 47th. The state scored 44th in the Fiscal Policy subcategory, 46th in Regulatory Policy, and 48th in Economic Freedom. Finally, California was voted the worst state in the nation for jobs and business growth for the fourth year in a row in Chief Executive magazine's 2009 "Best & Worst States" survey of hundreds of CEOs.

If the Golden State is to regain its lustre, it must dramatically reduce the tax and regulatory burden that is driving businesses and jobs to states with fewer impediments and more economic opportunities. Moreover, it will not solve its persistent budget problems without encouraging economic growth. For years, the public sector has been consuming more than its share of resources and cannibalizing the private sector that is responsible for economic growth. It is far past time for the pendulum to swing the other way towards smaller government and a freer, more productive private sector. In addition to reducing taxes and eliminating red tape, the state should get rid of policies such as occupational licensing requirements and the minimum wage, which only serve as a barrier to work, raising unemployment and resulting in higher prices to consumers in the process.

Occupational Licensing and the Beard Trimming Turf War in Texas

Posted on September 24, 2009, 6:25pm | Adam Summers

A recent post on the New York Times Freakonomics blog discussed the issue of occupational licensing. As author Daniel Hamermesh correctly notes, licensing benefits existing practitioners at the expense of potential competitors and, ultimately, consumers.

A headline in our local paper screams: “Barbers, Cosmetologists in Turf War Over Shaving.” The question is where sideburns end and beards begin.

In Texas, only barbers are licensed to trim beards, and they are unhappy that cosmetologists are cutting into their market.

This fight illustrates the effects of occupational licensing—legal restrictions on workers’ ability to enter certain markets.

Barbers have benefited over the years from the exclusion of cosmetologists in what was essentially a restriction on supply. Along with the high entry costs (nearly a year of required training), this has raised the equilibrium wage of barbers—and the equilibrium price of a haircut. Licensing of medical doctors, where the consumer lacks information on quality, might be sensible. But barbers and cosmetologists?

As one party to this controversy noted, “Most of the rules are so archaic and pathetic. They’re prehistoric.” True—and it’s the consumer who suffers.

The above example illustrates the arbitrary—and sometimes downright ridiculous—nature of many licensing laws. Those that offer bad beard trims, whether they be barbers or cosmetologists, are not likely to stay in business long. Consumers do not need the state to step in and regulate the scourge of bad trims. For that matter, heaven forbid getting rid of licenses for barbers and cosmetologists altogether. Why, people all across the state would be walking around with bad hair cuts and bad nail jobs!

Licensing laws are entirely about protecting a group of businesses from competition, not about "protecting the public." This is why new or stricter licensing regulations are virtually always proposed by the group to be licensed—not because of any public outcry—and why those seeking the regulations are typically "grandfathered" in so that they do not have to meet the tougher standards they impose on their future competitors. Make no mistake, occupational licensing laws are borne of special interests, not the public interest.

As a result of the licensing, competition in the licensed occupation is reduced, allowing licensed businesses to charge consumers more than they would in a free market. Furthermore, mandatory licensing may have other unintended consequences, such as giving consumers a false sense of security about those with whom they do business and leading to the creation of black markets for goods and services.

Voluntary certification is a much better model, as it allows businesses to signal their competence and quality by satisfying the requirements of an independent certification organization while offering consumers the freedom and flexibility to choose certified or uncertified practitioners, depending on their budgetary constraints, risk tolerances, or other preferences. Where there are instances of fraud or negligence, which will occur with or without mandatory licensing laws, the court system can serve as a final check to ensure that consumers are protected or awarded restitution for poor service.

Other resources:

» My previous policy study on occupational licensing, Occupational Licensing: Ranking the States and Exploring Alternatives, which includes a ranking of the 50 states by how many jobs they require licenses for.

» My column for the Los Angeles Business Journal on occupational licensing and how California tops the list in terms of the most-licensed states in the nation.

» Show-Me Institute brief on occupational licensing.

State Licensing Mandates for Movers in Illinois Increase Prices, Reduce Job Opportunities

Posted on September 16, 2009, 11:21pm | Adam Summers

Thank you to David Stokes of the Show-Me Institute for pointing out this horrible Chicago Tribune story on unlicensed moving companies in Illinois. The ostensible "news" story about unlicensed movers in the State of Illinois is heavily slanted in favor of the state's existing compulsory licensing structure and never considers any alternatives to the current system, such as voluntary certification.

Things have been difficult for the moving industry lately, particularly with the collapse of the housing bubble--and the economy in general. This has led penny-pinching consumers to look to cheaper options, and has encouraged some people who have been laid off or are otherwise looking for some supplementary income to enter the business without getting a license. The number of licensed residential movers in the state is down to about 300 from nearly 500 in 2001, and licensed movers are complaining about competition from unlicensed movers.

The Chicago Tribune article cites a licensed moving company sales manager who claims that consumers that utilize the services of unlicensed movers have little or no recourse if there are billing disputes or damaged or missing items. As David notes in his own blog post on the topic, this ignores the fact that a business's reputation and the legal system serve as checks on negligent or criminal behavior on the part of movers. Simply put, businesses don't become successful by treating their customers poorly. Consumers can additionally minimize risk by doing some homework on businesses by asking for references and proof of insurance or looking for other consumers' reviews of businesses. Even with the current licensing system, the Tribune article cited the Web sites movingscam.com and Craigslist as places people can go to see negative reviews of moving companies. If the state licensing body did not exist, there would likely be even more such resources, but its presence may lull consumers into a false sense of security about the companies they do business with simply because they are "licensed." Furthermore, if problems do arise that cannot be resolved by the customer and business (or a third party such as the Better Business Bureau or, in the absence of a state licensing board, a voluntary certification organization), the legal system is available to settle disputes.

Occupational licensing--whether it involves movers or any other kind of business--is typically imposed or expanded for the benefit of the licensed businesses, not the public interest. Licensing requirements make it costly to enter a line of work, which means that there is less competition for the licensed businesses and those businesses can charge higher prices than they otherwise would.

Here is one problem with compulsory licensing. Some have attempted to get around Illinois's moving license requirements by merely packing and unpacking goods for people. The customer must handle the actual transportation by renting and driving the truck containing the items. Such packers/unpackers are still required by state law to have workers compensation insurance, however. According to the Tribune article,

Frank Gomez has run such an operation for two years after spending 15 years working for licensed movers. . . . He admitted being unlicensed and uninsured and said he desperately wants to become a licensed mover and have his own trucks. However, he can't swing the costs. It's $900 to get a license the first time and thousands more in insurance costs.

Here you have someone who wants to provide a legal service to people who need it--and who has quite a bit of experience doing it--but he cannot because the tribute the state licensing authority requires is too high.

In addition to pricing out qualified practitioners, mandatory licensing requirements also set a single standard that is not necessarily applicable to all consumers. People have different needs and different levels of risk tolerance, and they should be free to do business with whoever suits their preferences the best. Even without mandatory state licensing, some businesses would want to maintain certain levels of insurance or satisfy other requirements that an independent certification organization might recommend in order to signal to people that they are well qualified. Others would be content to advertise their services as just "two guys and a truck." Similarly, some consumers would want more peace of mind about those they do business with and look for the "certified by _______" seal of approval, while others, particularly those who could not afford the services of state-licensed practitioners, would be content to use the cheaper services of two guys and a truck.

In any case, the point is that eliminating state mandates and increasing the choices of both consumers and businesses leads to the greatest amount of freedom, the greatest level of commerce, and the greatest benefits for consumers. Particularly during a time of economic difficulty, Illinois and other states should be reducing licensing regulations, which only serve as barriers to work and result in higher costs to consumers.

Other resources:

» My previous policy study on occupational licensing, Occupational Licensing: Ranking the States and Exploring Alternatives, which includes a ranking of the 50 states by how many jobs they require licenses for.

» My column for the Los Angeles Business Journal on occupational licensing and how California tops the list in terms of the most-licensed states in the nation.

» A column David Stokes and I co-wrote on occupational licensing, with emphasis on regulations in Missouri.

» Show-Me Institute brief on occupational licensing.