These are the regulations that need an overhaul

Liberals endlessly warn that tough business regulations are needed to protect the environment and workplace. Conservatives counter forcefully that regulations unnecessarily stifle businesses and cost jobs.

But the business regulations that may have the most impact – under highly questionable policies – may be the licensing requirements for dozens of occupations in each state.

Matthew Yglesias of Slate.com offers an interesting look at licensing rules for everyone from barbers to bus drivers. What he found is a system that is a mess – and an area desperate for reform that surely can be a source of common ground for Democrats and Republicans.

Obviously, there’s a huge difference between dumping mercury into a river and giving someone an especially bad haircut. Yet, the regulations that most directly thwart entrepreneurs and new small businesses – the real job creators – are rarely up for discussion.

Yglesias notes that studies have shown tax rates are overrated as a predictor of where businesses want to locate. But licensing requirements are “by far the best statistical predictor of business-friendliness” for those small business owners subjected to such rules, Yglesias wrote in a recent online piece for Slate.

A recent study by the Institute for Justice found that licensing regulations receive little scrutiny and often reflect irrational policy-making. For example, Nevada, Louisiana, Florida, and the District of Columbia all require aspiring interior designers to undergo 2,190 hours of training and apprenticeship and pass an exam before entering the marketplace. Yet, in the other 47 states  no training requirement exists. Meanwhile, the public safety issue that the rules in the three states are designed to address escapes me.

The study found that all states – except Alabama -- require barbers to be licensed, but the requirements are random. New York barbers need 884 days of education and apprenticeship, Yglesias wrote, but across the river in New Jersey, it’s 280. I suspect an inexperienced barber who consistently cranks out hatchet jobs on his customers’ heads will be pushed out of business by word of mouth, with no government regulator intervening.

The Institute for Justice also detected an unmistakable pattern: “The licensing of lower-income occupations is both widespread and onerous – and, in many cases, irrational and arbitrary.”  In other words, those who don’t have lobbyists and can’t afford generous campaign contributions are the business owners hit hardest by the lawmakers.

Based on costs, training requirements, age requirements and other factors, the IJ report ranked each state based on how business-friendly their licensing process is. Michigan ranked in the middle of the pack at 26^th.

Surprisingly, some of the states with the worst rankings are those normally associated with low-tax, low-regulation, pro-business policies – such as Nevada, Arkansas, Florida and South Carolina. In contrast, some progressive states are ranked among those most welcoming to the private sector – Colorado, Vermont, New York.

Another problem is the growing reliance upon licensing requirements by states to, among other things, generate revenue through fees. According to research, in the early 1950s less than 5 percent of the population worked in occupations covered by state licensing rules. Today it’s well over 20 percent.

Here’s a portion of Yglesias’ piece:

“Some of this is surely justified. You need a license to drive a car, so requiring a special license to drive a bus is reasonable. Even there, though, you may wonder why it’s so much harder to become a licensed bus driver in New Jersey than anywhere else.

“But a wide range of these rules could be done away with entirely at basically no risk. Regulation is needed when it would make sense for a firm to deliberately engage in malfeasance. Dumping harmful toxins into the air is highly profitable unless it’s prohibited. Financiers can draw huge bonuses by taking on too much risk, only to wreck the economy later. In other occupations, though, shoddy work brings its own punishments. An interior decorator who can’t get recommendations from satisfied customers probably won’t remain an interior decorator for long.

“In these cases, licensing rules raise the prices the rest of us pay, make it difficult for successful entrepreneurs to expand their businesses, and are often a major barrier to employment for the most vulnerable populations. New Jersey’s ban on high-school dropouts fixing locks sounds silly, but given the generally bleak prospects facing workers with little education, barring them from whole occupations is a big deal. States should take a good, hard look at their existing codes and ask whether mass unemployment isn’t generally a bigger threat to the public than rogue barbers.”

You can read more here.