Lemonade Stands Are Latest Victim of Excessive Regulation
The drink mix brand Country Time launched their “Legal-Ade” campaign on June 7, offering to pay fines issued to children operating lemonade stands this summer. If children send in pictures of their citations, the Kraft Foods brand promises to reimburse them up to $300. According to corporate representatives, the company came up with this idea to advocate for children’s entrepreneurial rights against legal overreach. “When life gives you arcane laws,” says a Country Time ad, “make lemonade.”
Every year, more stories emerge revealing how local governments shut down children’s lemonade stands by slapping them with regulations and permit requirements. Just this May, Denver police shut down a lemonade stand run by two young boys who wanted to raise money for Charity International, but hadn’t paid for a permit. In theory, the permit process is supposed to prevent health issues, but the police only got involved after fielding a complaint from another vendor at the nearby Denver Arts Festival. The other vendor sold lemonade for seven dollars a cup, while the boys charged only 75 cents.
Lemonade stands are supposed to teach children lessons about money and work ethic, but for too many young entrepreneurs, they instead provide an introduction to the world of occupational licensing.
Permitting requirements have skyrocketed over the past several decades. In 1950, only 5 percent of American workers needed a license to do their jobs legally. Today, that number approaches 30 percent. Advocates claim that standardizing practices and registering businesses prevents consumer exploitation. But as with the young lemonade entrepreneurs, many of these heavily regulated occupations pose no serious threat to themselves or others, even if done poorly.
Examples of bizarre regulations abound. For most licenses, a person must pay fees and undergo some period of formal training, supervised experience, or both. In 22 states, you must get a license to paint houses commercially; it takes an average of 386 days and $382 to acquire one. Thirty-seven states require a license to shampoo someone’s hair in a salon. In four states, to be an interior designer, you must be willing to spend six years training and fork over an average of $1,265 in fees and other costs. Connecticut regulates home entertainment installation so intensely that it takes 575 days and $185 to get licensed to install a TV.
Shutting down kids’ lemonade stands down may do no more harm than crushing their enthusiastic spirits. But when occupational licensing impacts adults, livelihoods can be at stake. Collectively, licensing laws harm the marginalized and the poorest, who need entry-level jobs the most.
For instance, some licenses require applicants to have earned a bachelor’s degree, which disproportionately impacts racial minorities. According to a 2017 Mercatus Center study, black and Hispanic interior designers are 30 percent less likely to hold a college degree than white designers, so design licenses often shut racial minorities out of the potential labor pool. And introducing barber licenses reduces the likelihood that a black person will become a barber by 17.3 percent. These and other regulatory burdens on entry-level jobs play a crucial role in perpetuating economic immobility and inequality.
Not only are potential workers harmed, but customers pay a price for these licenses as well. Another 2017 report from the Mercatus Center finds “unequivocal” evidence that licenses lead to artificially high prices. Basic labor economics helps explain why. Too often, occupational licenses create barriers to entry into the field. Because the training time and fees required prevent some people from pursuing or earning a license, licensure restricts competition. With less competition, those who are licensed are in higher demand and can charge more for their services.
Remember, while the two Denver boys’ lemonade stand was operational, art festival attendees only had to pay 75 cents for lemonade. After they were shut down, customers had to pay $7 for lemonade from the licensed competitor who reported them.
Some may interject that they are willing to pay more for services if licensing ensures safe, high-quality service. But, as the 2017 Mercatus report states, “Occupations that are less likely to involve risk to the public are often more highly controlled than riskier occupations.” For example, cosmetology licenses usually take over a year to obtain, whereas a prospective emergency medical technician (EMT) may receive a license within a month. This is not an anomaly: 73 low-income occupational licenses take longer to obtain than EMT certifications.
Furthermore, evidence indicates that licenses do not necessarily guarantee a high level of quality. In a review of 19 different studies on the effect of occupational licenses on service quality, researchers at Florida State University found no clear effect on quality in about two-thirds of cases, and negative impacts on quality outnumbered the positive.
Delicensing occupations where public safety is not a concern would reduce unemployment and prices. Instead, the status quo protects the select few who are already in the field, shuts out less affluent but capable workers, and raises costs for customers.
Even though the two Denver boys’ cheaper lemonade was popular — they had made $200 before getting shut down — their grown-up competitor won because she had the money for a permit and the social capital children lack. As long as the state continues such unfair permitting practices, it sends would-be entrepreneurs a dangerous message.
John Kristof is a Research Fellow at the Sagamore Institute in Indianapolis who writes frequently on economic issues. Follow him on Twitter @jmkristof.