CL Economics Professor Looks At Contractor Licensing
Dear Idaho Legislator:
I understand the Legislature has before it a proposal to license contractors. While this proposal has been made by well-meaning people, recall that the road to hell is paved with (apparently) good intentions. This licensure proposal should be rejected. Let me tell you why.
In 40 years of teaching and research in regulatory economics, I have yet to find an instance where, on balance, occupational licensure helps consumers. By setting up artificial, non-market, criteria for licenses, licensure will erect barriers to entry that protect incumbents from new competition. Further, once licensure is in place, incumbents will set up codes of "ethics", or the like, which will serve to throttle competition among the licensed. (For example, accountants and attorneys set up "ethical" standards which prevented advertising and the solicitation of customers from one another.) This is why the demand for licensure inevitably comes from those who would be "regulated". Follow the money. Incumbents WANT to be licensed and regulated, not because these would protect consumers, but because it would protect THEM from both internal and external competition.
From teacher certification to funeral directors to psychologists, protectionism has been the history of occupational licensure in Idaho and elsewhere. Idaho's Legislature should be moving in the direction of removing licensure and regulation not extending it.
If I can be of any further help to you in considering this bill, I would be happy to do so. In the meantime, you might consult the following study: S. David Young, THE RULE OF EXPERTS: OCCUPATIONAL LICENSING IN AMERICA, Washington, D.C.: The Cato Institute, 1987.
John T. Wenders
Professor of Economics, Emeritus
University of Idaho
jwenders@uidaho.edu