Public Choice Theory and Occupational Licensing

Abstract

Occupational licensing is now one of the most widespread and fastest growing forms of labor market regulation. Occupational licensing requirement generally are defended on the ground that they offset the information disparity between service providers and consumers by guaranteeing a minimal level of qualifications. Over time, however, a large number of federal government officials, scholars, and commentators have criticized the widespread use of occupational licensing requirements. They have argued that licensing requirements benefit licensees, not consumers, by helping to create a cartel that can avoid competition and raise prices. Public Choice Theory is a useful tool for analyzing licensing requirements because it applies microeconomic and game theory to the political process. Doing so gives rise to the remarkable irony that the justification for regulation has come full circle. Originally, the rationale was that government intervention would remedy economic market failures in furtherance of the public interest. Today, we see that government intervention causes political market failures in furtherance of private interests. Government has become the problem, not the solution.That conclusion justifies a re-examination of the constitutionality of many occupational licensing schemes. Then Supreme Court has been unwilling to re-examine the constitutionality of these programs since the new Deal, but there are two grounds that might prove useful. One is the Equal Protection Clause. It requires a rational basis for treating similarly situated people differently. Here, the argument would be that the basis for requiring licenses is due to the operation of political bribery and extortion, which is not a legitimate state interest. The second argument would be that many license schemes vest lawmaking authority in private parties, which the Private Delegation Doctrine forbids.