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Sabotage the License Raj
+ Brandon Fuller
Licensing a hair-braiding operation in Utah will run you $16,000 in tuition for two years of cosmetology school. Legally setting up shop as a street vendor in New York City could take significantly longer — the city limits licenses to 853 but the waiting list is in the thousands. For Jacob Goldstein, writing in The New York Times Magazine, and Nate Berg, writing on the Atlantic Cities blog, hair-braiding and street vending are examples of jobs where licensing requirements have gone badly wrong, creating harmful obstacles to formal sector employment growth.
In fields like interior design, cosmetology, athletic training, or landscaping, excessive barriers to entry benefit insiders by restricting competition but harm consumers by raising prices. Matt Yglesias, who’s been blogging this topic for years, suggests that, on net, overzealous occupational licensing requirements hurt workers as well, in part by limiting peoples’ exit options from their current jobs:
From a worker’s-eye-view it continues to be the case that one of the best forms of security anyone can get against bad conditions at work is a credible right of exit. Even relatively modest licensing requirements make it very difficult to quit the job you have. After all, if you quit you’ll have no income while you go about getting yourself licensed. But as long as you’re working, family responsibilities may make it impossible for you to go through the process.
By stifling entrepreneurship, excessive licensing requirements may also weaken the economic resiliency of the urban areas where they’re in force. In a piece for City Journal, Edward Glaeser argues that there is a strong connection between entrepreneurial activity and urban success:
One way of estimating entrepreneurial activity is average firm size; the idea is that a city with lots of smaller firms must have a lot of entrepreneurs running them. Another commonly used measure is the percentage of a city’s employees who work in new firms. Over the last 30 years, cities that are entrepreneurial, according to either of these measures, have added jobs more vigorously than those that aren’t…These findings support the ideas of the economist Benjamin Chinitz, who argued 50 years ago that New York City was resilient—it could remake itself as economic conditions changed—while Pittsburgh was not, because New York had a remarkable history of entrepreneurship. New York’s garment industry, the largest industrial cluster in postwar America, was a hive of small companies where anyone could get started with a good idea and a few sewing machines. Pittsburgh, by contrast, was the home of U.S. Steel—practically the definition of corporate America—whose company men were exceedingly unlikely to become entrepreneurs when the steel industry faltered.
Fostering entrepreneurship is a multifaceted challenge, but cities can start to get out of their own way if they ensure that people can easily and legally set up shop in fields where the only beneficiaries of costly licensing are competition-wary incumbents.