News at Smith

007: Licensed to Cut Hair

Aug 11, 2015

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SMITH BRAIN TRUST -- The Obama administration is taking aim at a job killer that doesn't get a lot of attention: Excessive occupational licensing. Not the sexiest topic, granted, but livelihoods are made or dashed by it — and it's an area where the president is finding common ground with conservatives.

An explosion of credentialing: About one-quarter of jobs today require some kind of licensing by state governments, up from 5 percent in the 1950s. Some of this is crucial for public safety and well-being. You want your doctor to be licensed, and probably your accountant. But a hairdresser? Florists?

Expensive and inconsistent: Research shows that licensing increases prices for consumers because it restricts entry into occupations. Worse, every state has its own licensing regime, so workers often have to take more courses and pay more when they relocate. The patchwork approach can be especially tough on people who move a lot, including military spouses.

Nudged by Yelp: There have always been debates about whether the market can do some of the work that licensing is supposed to do. (Just how long will a talent-free barber stay in business?) But the rise of crowdsourced sites like Yelp and Amazon Home Services has sharpened the question about whether licensing is the best way to protect consumers from incompetent service providers, says Siva Viswanathan, a Smith School professor who is researching the relationship between online reviews and licensing. "I wouldn't go so far as to say you should get rid of all licensing," Viswanathan says. "But regulators should look at these market-based review mechanisms for ideas about how to do a better job." The administration has proposed giving states $15 million in grants to explore ways to reform the system.

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