Blooming nonsense: do claims about the consumer benefit of licensure withstand empirical scrutiny?
Carpenter, Dick M., II
Leslie Massony and Monique Chauvin are established experts in their
field, with awards and happy customers testifying to the quality of
their work. Nonetheless, after years in the business, they had to take a
state test in order to continue legally practicing their trade. The test
included a written assessment of industry knowledge and a multi-hour
practical exam scored by judges already in the trade. The practical exam
required them to use special tools to complete delicate tasks with often
fragile and slowly dying organisms under the pressure of rime and
scrutiny.
Passing this test meant Massony and Chauvin could officially join
an exclusive club of practitioners protected by a state law adopted
during Franklin Roosevelt's first term as president. They are now
licensed by the State of Louisiana to practice ... floristry.
Louisiana is the only state in the nation to require government
permission to arrange flowers, but this kind of occupational license is
hardly unique. On the contrary, occupational licensure now affects more
American workers than minimum wage laws or unionization, according to
noted occupational licensure expert and University of Minnesota
economist Morris Kleiner.
In his fall 2006 Regulation article "A License for
Protection," Kleiner used census data to estimate that the
percentage of the workforce in licensed occupations had grown from 4.5
percent in the 1950s to about 20 percent by 2000. More recently, Kleiner
and coauthor Alan Krueger (former assistant secretary for economic
policy in the Obama Treasury Department) upped the estimate to about one
in three workers: 35 percent of workers are either licensed or certified
by government, and 29 percent are fully licensed.
Often, government licenses occupations that are perfectly suited
for new or returning members of the workforce who may be short on formal
training and capital--occupations such as African hair braiding,
manicuring, taxi driving, and interior design. While requirements for
obtaining licenses vary across localities and occupations, states
require tests for occupations such as travel guides, taxidermists, home
entertainment installers, pest control workers, auctioneers, and
interpreters for the deaf.
As numerous studies have shown, the costs of these regulations are
both predictable--fewer practitioners in the occupation, artificially
inflated wages, higher prices for consumers--and not so predictable. In
a 2009 study of interior design regulations, for example, Kenyon College
economists David Harrington and Jaret Treber found occupational barriers
to entry disproportionately excluded minorities and older workers.
Defenders of occupational licensing typically claim it protects
public health and safety and benefits consumers by ensuring quality
products and services from quality producers. For example, in 2004, an
official with the Louisiana state agriculture commission testified that
the florist license protects consumers and florists from infected dirt.
One wonders how consumers and florists in the other 49 states have
survived.
On the issue of quality of service, the head of a statewide
florists' organization told the Louisiana legislature in 2004 that
the tests were "necessary to protect consumers and ensure that the
products florists put out are up to snuff." In March 2010, another
florists' association representative asserted on the Stossel
program that licensing ensured practitioners have an "understanding
of the principles and practices of floral arranging and the mechanics
that are involved."
This claim generated plenty of guffaws from Stossel's studio
audience. And, in fact, while some scholarly research finds positive
effects from licensing, a growing body of literature calls into question
claims that licensing improves quality in occupations including
teachers, interior designers, construction trades, denfists, and
physicians.
In January 2010, I put the quality-of-service claims advanced by
defenders of Louisiana's florist licensing regime to the test with
an original experiment. The results show that, as Stossel's
audience recognized, the idea that licensing florists improves the
quality of their work is blooming nonsense.
Judging Flowers and Florists
To see whether floral arrangements for sale in Louisiana are indeed
appreciably superior to--or even appreciably different from--those made
by unlicensed florists, I conducted a randomized field experiment.
Twenty-five arrangements were purchased from randomly selected retail
stores in regulated Louisiana and 25 from stores in unregulated Texas.
Retailers were given a theme--sympathy--and some general parameters in
which to work. The florists had no idea their arrangements would be used
in the experiment, so the arrangements were typical of those any
consumer might buy.
[ILLUSTRATION OMITTED]
I then asked a panel of 18 randomly chosen florists--eight from
Texas and 10 from Louisiana--to rate the arrangements on a scale from 10
to 50 using criteria such as proportion, balance, color, form, and
workmanship. Judges did not know the origin of the arrangements.
Not surprisingly, judges rated the Texas and Louisiana arrangements
essentially the same, giving the Texas arrangements an average score of
25 to Louisiana's 24.05, a difference that is not statistically
significant. Using multiple regression to control for the state of
origin of the judge, the freshness of the arrangement, and the cost of
the arrangements, I found that there is essentially no difference
between arrangements from licensed and unlicensed florists.
Not only does licensing have no effect on the quality of
arrangements, but I found that it also has no effect on the quality of
florists. The theory of consumer benefit from licensing is that
consumers receive better products because licensing improves the pool of
producers by weeding out the less capable. If Louisiana's law had
that effect, one would expect that Louisiana florist-judges, all of whom
were licensed, would be more discerning in their judgments and rate the
arrangements systematically differently than the Texas judges. However,
using Intra-Class Correlation, a form of analysis that examines the
consistency of multiple judges across items, I found a high degree of
consistency ranging from 0.749 to 0.933 between the judges. The data
show licensed florists are not more discriminating than unlicensed ones.
Better Business Bureau complaint data confirm the experiment's
finding that Louisiana's license had little effect on quality. If
Louisiana's regulation was beneficial, one would expect to see
fewer complaints against florists in Louisiana compared to nearby
states. Yet results revealed very similar complaint rates (that is,
complaints per business) in Louisiana, Mississippi, and Arkansas, and
only moderately higher complaint rates in Texas. Statistical testing
revealed no significant differences.
Judging Licensure
When I revealed to the florist-judges--in focus groups after the
experiment--that the arrangements came from different states, they were
not surprised that the ratings did not differ at all based on state of
origin, even after being reminded that Louisiana licenses florists and
Texas does not. They pointed out that the quality of the work reflected
the efforts of individual businesses to please customers more than being
a function of licensing requirements.
According to one florist-judge, "If you don't do good
work, you're not going to have any business." The suggestion
that using licensure to restrict market entry might protect the public
from low-quality or unsafe florists and floral arrangements provoked
skeptical laughter from the focus groups.
Apart from a few judges who approved of using licensure to exclude
people who work out of their homes or otherwise sell arrangements
outside of a traditional retail shop, the Louisiana judges were
uniformly critical of the licensing regime. One even reported that a
competing floral shop near her store repeatedly called the Louisiana
Horticultural Commission, which oversees floral licensing, with
trumped-up complaints as a way to harass and damage her business.
Many in the focus groups felt that instead of producing
high-quality florists, licensure served two purposes: raising money for
the state through licensing and testing fees and shutting out
competition. At the time of the experiment, applicants had to pay the
state $150 to take the full licensing exam and $100 for each re-test of
the design portion. Study booklets cost $50 and license renewal costs
florists $75 a year.
All of the Louisiana judges criticized the licensing exam for
testing knowledge on outdated techniques that went out of fashion
decades ago. Moreover, floral design requirements were dismissed as
"ugly" and something consumers would not buy.
Consumers vs. Bureaucrats
With such observations, the focus group participants provided
experience-based commentary on the ironic relationship between
occupational licensure and quality of goods or service. As scholars for
some decades have noted, licensure weakens competitive pressures in an
occupation or profession, resulting in the retardation or distortion of
innovation and technical progress. In part, this is because the nature
and organization of services are shaped by producer interests rather
than client demand.
One of the more recent scholars to discuss this idea is UCLA
sociologist Stefan Timmermans in a recent issue of the journal Work and
Occupations. He notes that the standardization and bureaucratization of
the workplace through licensure (which he calls "market
shelter") stifles innovation by cementing in place and time how
work is done. In a dynamic social and economic environment,
practitioners find themselves beholden to bureaucratic requirements
rather than consumer demand.
As if he were trying to prove that point, the former head of the
Louisiana horticulture commission, Bob Odom, once defended the
state's law by asking, "If [aspiring florists] can't take
the instruction and pass the exam, how can they do an arrangement that
you and I want to buy?" How indeed. By Odom's logic, Leslie
Massony is a fluke, a miracle, perhaps a prodigy. Without a license--she
previously failed Louisiana's florist test twice--she was published
in prominent floral design books. For Massony, Chauvin, and the
countless other people aspiring to work in a walled-off occupation, that
is the true test. As Massony puts it, "The customers are the people
that really count."
Who Really Benefits?
So if--as my experiment indicates, scholars have long noted, and
practitioners observe--occupational licensure does little, if anything,
to improve quality for consumers, why do such regulations persist? The
florist focus group--and the work of economists and sociologists who
study occupational licensing--suggest the real purpose: protecting
financial rewards for existing practitioners by limiting competition.
According to the Economic Census, Louisiana has 332 floral retailers
that generate $76.8 million in annual revenues. Licensure enables
incumbents to enjoy a greater share of that revenue.
As additional evidence, consider the surprisingly powerful
"florist lobby" in Louisiana, which includes the state
florists' association. For years the lobby fought hard and
successfully against reform. In 2004, a bill that would have eliminated
florist licensing passed the Louisiana House of Representatives by a
vote of 93-2, but in classic public choice fashion licensed florists
packed a subsequent hearing in the Senate Agriculture Committee as a
show of concentrated opposition. The committee voted unanimously to kill
the bill.
Subsequent anti-licensing efforts also ran into significant
opposition. In 2008, the Louisiana House passed a measure eliminating
the highly subjective practical portion of the florist licensing test,
but the Senate modified the bill, instructing the horticulture
commission simply to put less weight on that part of the exam. The
change reduced the fail rate from 56 percent to 23 percent.
It was not until 2010 that regulation opponents finally broke down
the barrier to entry--at least in part. After the Institute for Justice
(IJ) sued the state for violating the constitutionally protected right
to earn an honest living, a bill was introduced in the Louisiana
legislature to repeal the florist licensing law. It passed, but not
before being modified to repeal only the arrangement portion of the
test, the most burdensome part of the regulation. The written test and
licensure fees remain.
Such deregulation is rare, however, and usually happens only after
overcoming significant industry resistance. For example, when the
Mississippi legislature considered removing a requirement that African
hair braiders earn a 1,500-hour cosmetology license just to braid hair,
state bureaucrats and cosmetologists staged a massive effort to protect
their turf. It was only after an equally Herculean effort led by
Tupelo-based hair braider Melony Armstrong that the law changed in 2005.
The American Society of Interior Designers (ASID) and its many
state affiliates have spent 30 years lobbying for restrictions on
interior designers. When IJ began challenging those laws, the industry
fought back to preserve their market shelters. When state legislatures,
in response to IJ lawsuits, considered bills to reduce the regulation of
their occupation, interior designers turned out en masse to lobby
against reform. The ASID crafted talking points and circulated them to
members and even hired university interior design academics to write
reports, all for the purpose of responding to IJ's position and
research. Despite the stiff resistance by industry groups, four states
so far have loosened the regulatory grip on interior design.
But these remain among the few exceptions. As Queensland University
of Technology economist Jason Potts wrote in a recent issue of Economic
Affairs,
Occupational deregulation almost never occurs. Instead, the
licensing of occupations is continually expanding frontier, ever
upgrading old trades and new services to the mantle of professional
status, and always justified in service of the public good. On and
on it rolls, "professionalizing" the workforce as it goes with
layers of new regulation and board certification, all the while
systematically redistributing rents from those outside the
licensing system to those inside it, raising rents across the
economy, inhibiting experimentation in new business models, and
stifling innovation in service delivery.
In Florida, for example, aggressive lobbying by interior designers
in the spring of 2009 helped defeat a bill that would have exempted
office furniture dealers--who have frequently been sanctioned by the
state Board of Architecture and Interior Design for offering forbidden
"space plans" in connection with the sale of specific items
like cubicles--from Florida's interior design law.
Market and Voluntary Alternatives
The losers from all of this regulation are consumers,
entrepreneurs, and workers alike. In a forthcoming article in the
British Journal of Industrial Relations, Kleiner and Krueger estimate
that occupational licenses increase wages as much as 15 percent,
typically borne by consumers in the form of higher costs. Our economy
limps along as entrepreneurship is strangled by the more than 1,000
occupations licensed in the United States. And workers lose because many
of the occupations that would be ideal for those entering or re-entering
the workforce are fenced off.
Occupational licensing eliminates the first rung of the economic
ladder. The result is that rather than encouraging positive economic
activity, states discourage it with no rational evidence to support
their actions.
Finding quality goods | This is not to say that the public finds no
value in "signals" of quality and competence commonly
associated with occupational licensure. Instead, the question is whether
such signaling requires state-sanctioned licensure that comes with real
costs instead of other forms of signaling that come without such costs.
One example of the latter is "market transparency," where
consumers receive signals through warranties or brand names. Other
signaling occurs through third-party consumer organizations, such as the
Better Business Bureau, and more contemporary versions built on new
information and communication technologies, such as Angle's List.
There is also credentialing through private or nonprofit
professional associations for practitioners who successfully demonstrate
the requisite knowledge, skills, and/or education. Examples include
Automotive Service Excellence certification for automobile mechanics,
Certified Travel Counselor designation for travel agents, or Certified
Financial Planner appellation for financial planners.
Specific to florists, the American Institute of Floral Designers
offers certification that requires a prescribed educational background,
a written exam, and a practical test to earn the title of Certified
Floral Designer. State floral associations also offer similar
designations. For example, both Louisiana and Texas--the states included
in my experiment--have professional associations that offer a
"master florist" title. This certification requires the
completion of a series of training workshops and a multi-stage testing
regime before certification. This certification could serve the same
signaling function to prospective florist employers and consumers
without the costs of licensure.
Given that the legislature stripped the florist licensing scheme of
the practical exam, Louisiana's private certification program may
become more active, as the industry is finally significantly free from
regulation that has been on the books since the early days of the New
Deal. Louisiana
now has a chance to see what (mostly) open entry in the floral market
looks like. Would that consumers and entrepreneurs across the country
facing similarly unjustified barriers to entry had the same opportunity
to enjoy the benefits of an open and dynamic marketplace.
READINGS
* "A License for Protection," by Morris M. Kleiner.
Regulation, Vol. 29, No. 3 (Fail 2006).
* Designed to Exclude, by David E. Harrington and Jaret Treber.
Institute for Justice, 2009.
* "Open Occupations: Why Work Should Be Free," by Jason
Ports. Economic Affairs, Vol. 29, No. 1 (2009).
* "Professions and Their Work: Do Market Shelters Protect
Professional Interests?" by Stefan Timmermans. Work and
Occupations, Vol. 35, No. 2 (2008).
* "The Prevalence and Effects of Occupational Licensing,"
by Morris M. Kleiner and Alan B. Krueger. British Journal of Industrial
Relations, forthcoming.
BY DICK M. CARPENTER II | Institute for Justice
DICK M. CARPENTER II is a director of strategic research at the
Institute for Justice and an associate professor in the College of
Education at the University of Colorado at Colorado Springs.