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Occupational licensure is a political process whereby various trades and professions are enabled to erect barriers against competition through the enforcement power of the state. Some 640 occupations in the United States require registration, and some 490 are currently licensed. This procedure limits consumer choice, raises consumer costs, increases practitioner income, and restricts entry opportunity without a demonstrated improvement in quality or safety beyond that provided by private certification.
Licensing confers monopoly advantages which enable practitioners of hundreds of services to charge above-market prices. The wealthy can afford to pay but the poor are often forced to do without. It’s as if those who cannot afford a Cadillac are forbidden to buy a Honda.
But do we not need licensing to insure quality service and weed out quacks? No, says the author. Private certification which limits the use of certain titles—Realtor, for example,and other nonintrusive mechanisms would afford substantially the same protection, without violating any basic freedoms.

A careful analysis of licensing's effects across a broad range of occupations reveals some striking, and strikingly negative, similarities. Occupational regulation has limited consumer choice, raised consumer costs, increased practitioner income, limited practitioner mobility, and deprived the poor of adequate services—all without demonstrated improvements in the quality or safety of the licensed activities.
Licensing laws generally require candidates to meet four types of requirements: (1) formal schooling, (2) experience, (3) personal characteristics (such as citizenship and residence), and (4) successful completion of a licensing examination. The mechanism for enforcing these requirements and maintaining control over a licensed occupation is the state licensing board. The state legislature, in effect, grants a charter to the board, and the board's members, frequently drawn from the regulated profession itself, are appointed by the governor. Establishing licensure is only part of the story, of course. The tendency in all professions is to increase constraints on entry after licensing laws have been introduced, with existing members of the occupations protecting themselves with "grandfather clauses" that permit them to bypass the new entry requirements.

S. David Young

S. David Young is a professor at INSEAD (France and Singapore), holds a PhD from the University of Virginia, and is both a certified public accountant (United States) and a chartered financial analyst. His main research interests are value-based management, executive compensation, and corporate financial reporting. Most of his efforts focus on how businesses can align key management systems with the value creation imperative. His research has appeared in a wide range of academic and professional journals, including the Harvard Business Review. He is also a consultant, having advised many firms in Europe, North America, and Asia.