Is licensing antipoor?

Over the weekend, I came across a new article in The Economist provocatively titled “How to Rig the Economy: Occupational Licensing Blunts Competition and Boosts Inequality.”

It called to mind a top pharma industry executive’s lament that I wrote of some months back, on how the new Chemistry Profession Act (Republic Act No. 10657) has made it difficult and costly to staff their laboratories at a time when his industry sees wide growth potentials.

Our neighbors, he noted, don’t have the kind of board exam we require of our own chemists. He said his daughter studying chemistry in Australia can readily practice her profession there straight out of college, without need for any licensure exam.

The Economist article, while written in the American context, largely applies to our country as well, and makes some interesting observations:

One, occupational licensing has been rising over the years. Whereas in 1950, one in 20 employed Americans required a
license to work, this had risen to more than one in five by 2017. Even makeup artists and bartenders are licensed in many states, as if applying rouge or mixing a martini critically requires government oversight. (Luckily, these occupations don’t require a board exam in our country… yet.) The article argues that the sheer variance of professional regulations across states proves that many licenses are superfluous. One state regulates up to 1,100 occupations, but less than 60 are commonly regulated in all 50 states. Here at home, professional regulatory boards license 43 occupations ranging from accountants to veterinarians, including librarians, teachers, social workers, and, perhaps most prominently, nurses, doctors and lawyers.

Two, it is often practitioners themselves who define the boundaries of the regulated profession, giving it the semblance of an “exclusive club.” The article describes how North Carolina’s board of dentistry, elected mainly by dentists themselves, tried in 2006 to stop hygienists and beauticians from providing teeth-whitening services, after dentists complained about their prices being undercut. The Federal Trade Commission — the counterpart of our own new Philippine Competition Commission (PCC) — stepped in and had the US Supreme Court stop the prohibition, ruling that the board was not exempt from competition law. Our own new competition law (RA 10667) similarly empowers the PCC to stop other government entities, including professional regulatory boards, from imposing rules that thwart fair competition.

Three, licensing significantly boosts the pay of workers/practitioners in the regulated field, particularly at the higher end of professionals’ pay scale. The article cites researches showing pay premiums in the range of 10-24 percent for the richest of professionals, a natural result of restricted supply under given market demands. Lawyers and doctors, in particular, are prominent beneficiaries of this premium.

The common justification for professional regulation is to ensure that minimum standards are met, especially in fields where lives and safety are involved. But critics argue that in most cases, the onus for quality control ought to lie with schools, which are the proper object of regulation for standards and quality, and enforcement thereof on their graduates. Apart from delaying direct employment for new graduates, licensure also narrows opportunities for them, as in the way new chemistry graduates are barred from immediately working in laboratories that may not necessarily require critical tasks of them. In this and other fields or industries, it can be left to companies to determine actual needs and select workers accordingly, and let market competition impose the discipline for quality control.

Less licensing and more competition in most occupations would widen opportunities and help bring inordinately high salaries and fees down, thereby prices as well. This would then widen access to various goods and services by the poor, and address populist sentiments that the economy is rigged in favor of the rich and powerful. And as The Economist notes, this is a sentiment that the evidence on excessive occupational regulation appears to support.

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