How Occupational Licensing Harms the Young
The following is adapted from Disinherited: How Washington Is Betraying America's Young (Encounter Books; May 12, 2015).
Occupational licensing, the requirement that people pass tests to gain government permission to work, is making it harder for young people to begin their careers. By keeping young people out of certain industries, or by making it prohibitively expensive and time-consuming for them to work, occupational licensing increases costs for all Americans and limit opportunity for those looking to enter the field of their choice.
Melony Armstrong, featured in the documentary Locked Out: A Mississippi Success Story, experienced the harms of occupational licensing laws firsthand. When she wanted to open an African hair-braiding salon, she had no idea that a long, hard battle against the State Board of Cosmetology lay ahead. Before her salon, Naturally Speaking, the hair-braiding salon closest to her hometown was in Memphis, Tennessee. Melony saw a business opportunity that would allow her to pursue her passion. From the time Melony decided she wanted to open a hair-braiding salon, it took her four years to realize her dream.
African hair braiding is a natural process that does not use any chemicals. For this reason, Melony saw no point in spending $10,000 and several years in a cosmetology school that would not teach her any of the skills she needed to braid hair. After the first of her many fights with the state government, she was able instead to earn a wigology license, which "only" required 300 hours of coursework — but not a single hour of braiding instruction.
As Melony's business expanded, she wanted to hire younger workers and train them so she could better manage the overwhelming demand for her services. In order to do that, however, she would have needed to complete another 3,200 hours of classes and apply for a cosmetology-school license. None of these hours in the classroom would have helped her learn how to braid hair, or how to teach braiding hair. In that time, Melony could have become licensed for all of the following occupations: EMT, police office, firefighter, paramedic, real estate appraiser, hunting education instructor, and ambulance driver. And she would still have had 600 hours to spare.
Experiences similar to Melony's are by no means rare. Results of Thumbtack.com's annual "Small Business Friendliness Survey," published in partnership with the Kauffman Foundation, show that small business owners care almost twice as much about licensing regulations as they do about taxes when rating the business-friendliness of their state or local government. This comprehensive survey collects data from more than 12,000 diverse small-businesses and provides a clear picture of how policies directly affect entrepreneurs.
Entrepreneurs such as Melony are mainly focused on bringing their ideas and skills to market, and they want to use as much of their available, and often limited, resources to do so. Seeking government approval to go into business is a waste of their valuable time and money. This is why the burden of professional licensing regulations was found to be the only statistically significant non-demographic variable for predicting states' business environments.
We asked Melony how these ridiculous requirements weighed on her, especially when she had to turn down young women who needed a chance to work. "When I first learned that I was not free to pursue my passion, I felt like I had hit a brick wall," she recalled. "I wondered whether I had made a mistake and if my effort, time, energy, and money invested were all for nothing. This was very similar to what I felt when I was legally prohibited from hiring the help I needed. ...All I was trying to do was braid hair and grow my business in a way that would afford my family financial freedom."
By protecting established, older workers, the government's occupational licensing requirements make it hard for the young to enter the workforce as entrepreneurs — leaving them with fewer job opportunities.
We asked Melony if she thought occupational licensing laws disproportionately harmed young people. "Yes, because most people seeking to enter the cosmetology field are going to be young people," she replied. "And if these kinds of laws are in place, after a while, these same young people who have a dream of entering this field, just to be shut out, will eventually let their dream die."
The decline in entrepreneurship is leading to the aging of American businesses, say economists Ian Hathaway and Robert Litan. In 1992, 23 percent of firms had existed for 16 years. By 2011, this percentage had increased to 34 percent. When there are fewer entrepreneurs and new market entrants, economist John Dearie argues, innovation lags and existing companies face lower pressure to improve quality or lower prices. This is because new businesses are the main drivers of "disruptive" innovation that is, as Dearie puts it, "the sort of radical, rock-the-establishment innovation that re-makes the economic landscape, propels productivity and economic growth, and creates opportunity, wealth, and jobs for millions."
Once Mississippi finally updated its laws, Melony began hiring workers and expanding her business. One young worker she hired, Ebony Starks, was only 16. A few months after she began working, her father passed away. It was summer and Ebony was able to work full time and help her family financially cope with the loss. Ebony is 24 today, and she continues to braid hair at Naturally Speaking. She worked at the salon all through college breaks and now has a young daughter of her own.
Prior to the reforms in 2005, Ebony's life might have been a lot more difficult, and for what? For the sake of protecting older, established salon owners? Many states have failed to follow Mississippi's lead and continue to require time consuming, expensive cosmetology licenses for African hair braiders, including neighboring Arkansas. Melony sees embracing entrepreneurship as the way to prepare young people for our rapidly changing, 21st-century economy. The easiest way to do this, she says, is to get out of their way and allow them to apply their gifts and talents while they realize their dreams. We could not agree more.
Occupational licensing was originally intended to protect the public from unqualified lawyers and doctors. It has now morphed into a network of ubiquitous barriers that affect nearly 40 percent of American workers, up from less than 5 percent in the 1950s. This is what happens when special interests — such as state boards of cosmetologists — manage to convince legislators that they deserve preferred treatment. America's economy is being damaged by occupational licensing, but the prospects of young people such as Ebony are being damaged most of all.
Diana Furchtgott-Roth is director of Economics21 at the Manhattan Institute and Jared Meyer is a fellow at the Manhattan Institute. They are the coauthors of "Disinherited: How Washington Is Betraying America's Young," out this month from Encounter Books. Follow Diana on Twitter @FurchtgottRoth, and Jared @JaredMeyer10.