Why Did We Celebrate Labor Day?

Labor Day was originally concocted by labor unions and the idea was to celebrate the union movement. But unions – at least in the private sector -- are being replaced by a different form of labor monopoly: occupational licensing. Should we set aside one day a year to celebrate licensing? Or should we celebrate instead the right to work?

Membership in labor unions has been nose diving over the last half century. According to the Bureau of Labor Statistics, only 11 percent of the workforce belongs to a union today. That’s down from about 30 percent during the 1950s. Private sector union membership has dropped to only 6.7 percent.

But if you think that means that labor markets have been getting progressively freer, you would be wrong. In place of labor unions we have seen the rise of a far more efficient way of monopolizing labor markets: the share of all workers who require government licenses has grown from about 5 percent in the 1950s to 29 percent in 2008.

With licensing, there is no need to collect union dues or go through the hassle of organizing diverse groups of workers who are potentially independent minded. All you need are politicians willing to place strict obstacles in front of those who would ply a particular trade.

Most people know that you have to have a license to practice law or dentistry. But did you know that in some states falconers, ferret breeders, and even palm readers are subject to government regulation? All told, an estimated 500 different occupations are subject to licensing restrictions somewhere in the United States.

The effects are not anodyne. As I previously reported, labor market participation rates are falling and the labor market is stagnating – with fewer people losing or leaving jobs and fewer people landing new ones. Two of the most important reasons: occupational licensing and a slowdown in small business creation (caused in part by such increasing regulation as Obamacare).

One area where licensing has been particularly important is the practice of medicine. Most of us don’t think of the American Medical Association as a union. Technically it isn’t one. But it has been far more successful in achieving benefits for those it represents than just about any of the trade unions that make up the AFL-CIO. Further, the methods employed by the AMA are increasingly being copied in just about every other profession.

One reason the doctors have been so successful is that they have been working at it for more than a century and a half. As I wrote in Regulation of Medical Care: Is the Price Too High, the subject of licensing was on the minds of the delegates at the very first AMA convention in 1848. By the first decade of the 20^th century, the movement to license the practice of medicine was well underway in every state. Organized medicine then went after the medical schools, closing down all the for-profits and effectively getting the power to approve all the non-profits. Even today, the AMA still exerts enormous influence over how many residency slots receive federal funding.

One important result of all this regulation: nurses are prevented from delivering care they are fully capable of safely and effectively delivering. Although, as I wrote previously, regulations vary markedly from state to state:

In Oregon, nurses with the proper credentials and licensure may open their practices anywhere they choose and operate in the same capacity as a primary care physician without oversight from any other medical professionals. They can draw blood, prescribe medications, and even admit patients to the hospital.

In Texas, which has some of the most stringent regulations in the country, however, a nurse practitioner can’t do much of anything without being supervised by a doctor…

These types of restrictions carry a heavy social cost, and that means there are potentially large gains in finding ways around them. Enter the for-profit medical school. There are about 70 medical schools in Caribbean countries, about half of which cater to Americans. These include St George’s University School of Medicine in Granada, Ross University in Dominica and American University of the Caribbean in St. Maarten. What about quality? As an investigative report in The New York Times explains, all three schools have qualified for federal financial aid programs by demonstrating that their standards are comparable to those in the United States. And they report that high numbers of their test-takers — 95 percent or more — pass the United States Medical Licensing Exam Step 1, a basic science test.

St. George’s … has tried to ensure the success of its students by paying hospitals to take them for their third- and fourth-year clinical rotations, which lead to those all-important residencies. It has entered into a $100 million, 10-year contract with the [the New York City Health and Hospitals Corporation, which runs 11 public hospitals] for 600 spots…. Last academic year, St. George’s placed 2,326 students in rotations in 98 American cities.

Years ago in Capitalism and Freedom, Milton Friedman argued that there is no legitimate reason to license any profession. If we are worried about protecting the public, let government certify the skills of various practitioners. Certification doesn’t restrict people’s choices in the labor market – either on the demand or the supply side. It assures people have the knowledge the government thinks they need and leaves them free to make their own choices.

Years ago in Capitalism and Freedom, Milton Friedman argued that there is no legitimate reason to license any profession. If we are worried about protecting the public, let government certify the skills of various practitioners.

Let government "certify the skills of various practitioners"? Isn't that what an occupational license is all about?

His point was the government could certify that their skills met a specified criteria, but people would still be able to use the services of a practitioner that is not certified. It would come down to the choice of the consumer if they felt that the government certification was worth anything.

In some occupations that might be OK, but I don’t understand how that would work in occupations where there is a public interest in ensuring the competency of the people who are involved. If someone is going to build a 25-story building in your neighborhood, I think everyone can agree that there’s a legitimate interest in having it designed and constructed by licensed professionals.

In some occupations that might be OK, but I don’t understand how that would work in occupations where there is a public interest in ensuring the competency of the people who are involved.

Charles Murray suggested retaining the current licensing process, but making it merely an option for someone who wants to practice a trade. People who get licenses could say that to potential customers, and people who don't couldn't. That way we eliminate the cartel problem of licensing, while retaining its alleged quality-enhancing effects.

It would be interesting to see how much customers value obtaining a license. Maybe a lot, maybe not so much.

That would be OK, but I'm referring to cases where it's not the customer who needs to be protected as much as the general public. It sounds great if a homeowner has the right to use licensed or unlicensed contractors to do electrical work or installing gas lines on his house, but there's a major risk to his next-door neighbors that clashes with this libertarian approach.

That would be OK, but I'm referring to cases where it's not the customer who needs to be protected as much as the general public.

That's a reasonable position, but first, how often do you think that situation arises outside the context of building design, construction and maintenance?

Second, architects who design self-destructing buildings or contractors who do self-destructing building work will not be doing that for long, and people who want to go into these trades know that. (In addition, just on grounds of basic decency alone, most although not all businessmen don't want to kill people.) If someone can make a lot of money on a few collapsible buildings or exploding gas lines and then disappear, this problem becomes serious, but I don't think that characterizes any market. Competition is a very powerful regulator of any market where it is free to operate, IMHO. But I am not in construction, so I certainly will defer to this point to people who are.

Building codes and inspections would prevent that more than licensing. If you want to make sure your house passes inspection the first time, maybe you choose to use a certified contractor. A government license doesn’t necessarily guarantee you anything. There are plenty of government licensed doctors getting sued for malpractice.

If someone can make a lot of money on a few collapsible buildings or exploding gas lines and then disappear, this problem becomes serious, but I don't think that characterizes any market. Competition is a very powerful regulator of any market where it is free to operate, IMHO.

Competition may be a powerful regulator, but in many cases it doesn't stand a chance against people who are pathologically cheap. You can look at any urban sh!t-hole in the Third World dump to see how that works.

Construction and building maintenance are probably the best examples of this, but I think licensing would be appropriate for any field where there is a public interest outside the interests of the customer and the business owner. Waste management is probably another good example.

Good point, but in terms of government intervention in a marketplace I don’t think there’s a huge difference between a license requirement and a building code.

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