President Obama has launched an initiative to focus more pressure on occupational licensing at state and local levels. The Administration’s new budget plan includes $15 million dollars set aside for states to investigate whether their licensing laws are good policy. As Jonathan Chait at New York Magazine argues, that budget item is “numerically trivial but philosophically important”:
State governments, with little public attention or debate, have spun a vast web of red tape that bars entry into working-class professions. Jobs like florists, manicurists, barbers, and on and on, impose unnecessarily burdensome restrictions on those who can practice the trade, closing off potential avenues for upward mobility. These restrictions have no policy rationale; they exist because incumbents in those fields have an interest in keeping out competition.
Chait is right. According to the Economist, in 1950s only 5 percent of the workforce needed state licenses to work. Today, 35 percent do. Wages rise on average 18 percent for workers in fields that require licenses, but others lose out. This is a classic blue model regulation, in which guilds inflate wages by restricting competition through government regulation.We are glad to see the Obama Administration start to address this barrier to economic growth and entrepreneurship, and its willingness to do so raises an important point about the blue model. The blue model debate often has partisan overtones, with Democrats cast as the protectors of the union of government and business that persisted throughout the 20th century and Republicans as its challengers. Depending on which aspect of the blue model system is at issue, however, it can have critics and defenders on both sides of the aisle. That poses unique challenges to really moving past it, but it also means you can see occasional moments of bipartisan opposition like the kind that appears to be coalescing around cutting through licensing restrictions. More of this, please.