I'm Dick Carpenter and this is License to Work.
There are seven million horses in the United States. It's an industry that
generates about fifty billion dollars for the economy and around 1 million jobs.
From racing to rodeo to working to
pleasure riding, there's constant demand for horseback riding instructors
as a longtime force owner I could start a business teaching others how to ride
right now in any state in the country except one,
Massachusetts.
Massachusetts demands that aspiring riding instructors
like me must first earn a state license before we can work legally,
even if we have years of experience.
To get this government permission slip to work
I'd first have to pass a test and then complete a six-month apprenticeship
under an already licensed instructor. Otherwise known as a future competitor.
The license acts as a fence, keeping newcomers out. Getting the license is the
only way through the gate.
State licensing laws erect fences around
hundreds of occupations all around the country. According to new report from the
Institute for Justice they keep people out of work and impose substantial costs
on our economy. Here's this one type of cost. And be sure to keep your heels down.
Thanks to Massachusetts riding instructor license,
instead of doing this.
I might end up doing this.
Now manual labor is honorable work and I've done plenty of it. From bagging
groceries and bussing tables to hanging drywall and building decks. And every horse
has done plenty of this.
But it's probably not the best use of my skills
and experience, and I certainly won't make as much money.
In economic terms this is known as a misallocation cost.
The skills that I could apply to this end
are, well, misallocated to this end.
Licensing prevents people from putting their talents to their best use.
Our study finds this misallocation of resources
costs to the American economy as much as 197 billion dollars a year.
The study also measures misallocation costs by state.
They range from 675 million in Rhode Island
to 22 billion dollars in California.
Here's another economic problem that licensing creates often livestock manure just piles up but
it could be used to farm fertilizer and that is a business opportunity.
I could start a business anywhere in the country
turning this waste into fertilizer for fields.
Unless I live in Iowa.
In the Hawkeye State getting paid to shoot manure from
behind a tractor requires a license. That means fewer manure spreaders and
less competition means higher prices for farmers. Thank you.
Years ago Nobel laureate Milton Friedman
called this the Cadillac effect,
forcing customers to pay for a Cadillac when they'd rather pay for something
just as effective but more economical.
And because farmer Johnson has to pay more
for my Cadillac services he has less to spend on more important things
around his farm, such as caring for a needy animal.
Together these represents a different kind of cost
in our new Institute for justice report, deadweight loss
to help us unpack this rather imposing term we've come here to the
Federal Reserve Bank of Chicago where we caught up with report co-author
Dr. Morris Kleiner. So doctor Kleiner what is deadweight loss? Those are losses in
output due to increased prices due to occupational licensing. And this occurs
as a result of higher prices that consumers pay which results in a loss in consumption.
In the new report that you authored for the Institute for justice
you actually measured deadweight loss at the national level what did you find?
Our results found that it could be as much as seven billion dollars per year.
But you didn't stop there you actually examined deadweight loss at the state
level as well it's one of the really unique contributions of your report what
were your findings? Yes in the 36 states where we found significant effects
the costs range from 28 million in Rhode Island to 840 million in California.
And of course that doesn't include miss allocation costs and jobs lost due to
licensing, is that right? That's right. losses nationally were as much as
2 million jobs lost, and that range from 7 thousand jobs lost in Rhode Island to as
much as a hundred and ninety six thousand jobs lost in California
Those costs are substantial but seldom recognized.
Seldom indeed when state legislatures
create licenses they do so because they think they're protecting
public health and safety. But there's little empirical evidence linking
licensing to health and safety. But this is not one of those problems with no solution
eliminating needless licensing burdens and if necessary replacing them
with less restrictive options can lead to more job opportunities
increased economic output and more equitable and
efficient allocation of resources. In future episodes we'll talk about what some of
those choices are and why they're likely better options. Until then click on the
report icon to read more from this report.