Are Occupational License Requirements Stifling Competition?

Thanks to established corporations trying to prevent their customers from jumping ship, U.S. entrepreneurs are facing a barrage of stifling occupational licensing requirements that raise the threshold expense of launching their own business. These requirements effectively curb competition through the constraints they impose. Nationwide, the number of state-licensed occupations has skyrocketed 25 percent since 1950.

Here in Massachusetts, several groups are demanding additional license requirements for those that would otherwise enjoy what they define as an unfair competitive advantage. Specifically, Uber, an on-demand driving service that has cab owners in an uproar, is being targeted – some would say persecuted – by officials in an attempt to shut the service down.

Maggie Donovan, the Vice President of Worcester’s Red Cab, says “Because they are an app company, they aren’t required to be regulated in the same way that traditional taxi companies are. This is a company that wants to destroy the taxi industry and ultimately doesn’t care about the customers that they are providing services to.” She added, “I’m not a bank competing with a bank, I’m a bank competing with a bank robber.”

The issue has led Rep. Sam Graves, U.S. House of Representatives Small Business Committee Chair, to pen a letter to the Office of Advocacy. In it he writes, “We are concerned that occupational licensing laws…could have the unintended consequence of stifling entrepreneurship. Occupational licensing also may impede innovation and business development as would-be entrepreneurs focus their resources on meeting licensing board requirements rather than on meeting the needs of their businesses or customers.”

The committee’s first of two hearings found an interior designer, Patti Morrow, who fought the legislation in two states, stating, “Licensing this industry is nothing more than restraint of trade.”

Melony Armstrong, a hair braider in Missouri, victoriously prosecuted her state’s licensing stipulations, avoiding 3,200 hours of courses to become a licensed cosmetologist just to teach hair braiding. She asserted that “The group that benefited most from Mississippi’s regulatory regime was the cosmetology establishment. Practicing cosmetologists made up the State Board of Cosmetology and could set the bar for entry to their occupation high (and thereby keep competition to a minimum)…I was not about to submit to such naked economic protectionism.”

An official from the Federal Trade Commission said that licensing provisions do safeguard customers from dangers to their well-being, but that frequently the primary result is the stymieing of competitors. Andrew Gavil, who directs the FTC Policy Planning office, said that “In the long term, they [regulations] can cause lasting damage to competition and the competitive process by rendering markets less responsive to consumer demand and by dampening incentives for innovation.”

Currently a case is pending before the U.S. Supreme Court, between the N.C. Board of Dental Examiners and non-dental service providers for teeth whitening. Rep. Graves wrote, “It is likely…the ruling will have significant implications for occupational licensing boards moving forward.”

It’s a certainty that the decisions reached on these cases will have a huge impact on how business is conducted here in the Commonwealth.

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