The Case For Abolishing Occupational Licensing

Written by
15 June 2018
Gideon and Daniel

Occupational licensing is government regulation of the conditions under which someone can legally practice an occupation. The requirements can relate to education attainment, experience, personal character, residency, and payment of membership fees to professional industry bodies. In Australia, many occupations require a license to legally operate, including doctors, lawyers, electricians, hair dressers, weed controllers, and driving instructors.

Occupational licensing imposes a range of costs on Australians. Most importantly, occupational licensing raises the cost of people practicing a given vocation, and so reduces the ability of people to access their preferred type of work, or to be able to find work at all. A consequence is that many, particularly those on lower incomes, are seriously curtailed from reaching their potential and living a more satisfying life. An attendant effect is to reduce labour market efficiency – as people are in occupations they are not as suited to – which reduces economic efficiency and economic growth.

Further, a large and growing body of evidence, mostly from the United States, shows that occupational licensing reduces wages and employment for those outside of licensed professions, increases wages of incumbent employees, reduces labour mobility, and raises prices for consumers which has a regressive effect.

To make matters worse, proponents of occupational licensing claim they are supporting a noble purpose. For example, proponents of occupational licensing often claim licenses are needed to keep incompetent, predatory, and untrustworthy suppliers out of the market. But the best available evidence does not support these claims. Firstly, people should be free to purchase cheaper, and potentially lower quality items. Secondly, the preponderance of evidence shows occupational licencing doesn’t raise quality or improve the safety of products and services. Thirdly, occupational licensing increases prices which falls most heavily on low income individuals. And by raising prices, occupational licensing creates incentives for people to economise on, or avoid, the use of regulated products and services. This decreases living standards and can result in injury or death. Finally, claims occupational licensing is required to address supposed information asymmetries are now largely redundant given technological development.

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Daniel Wild

Daniel Wild is the Deputy Executive Director at the Institute of Public Affairs

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