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The High Cost of Occupational Licensing — License to Work Ep2 - YouTube
Channel: Institute for Justice
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I'm Dick Carpenter and this is License to Work.
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There are seven million horses in the
United States. It's an industry that
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generates about fifty billion dollars
for the economy and around 1 million jobs.
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From racing to rodeo to working to
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pleasure riding, there's constant demand
for horseback riding instructors
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as a longtime force owner I could start a
business teaching others how to ride
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right now in any state in the country except one,
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Massachusetts.
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Massachusetts demands that aspiring riding instructors
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like me must first earn a state license
before we can work legally,
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even if we have years of experience.
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To get this government permission slip to work
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I'd first have to pass a test and then
complete a six-month apprenticeship
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under an already licensed instructor.
Otherwise known as a future competitor.
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The license acts as a fence, keeping
newcomers out. Getting the license is the
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only way through the gate.
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State licensing laws erect fences around
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hundreds of occupations all around the
country. According to new report from the
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Institute for Justice they keep people
out of work and impose substantial costs
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on our economy. Here's this one type of
cost. And be sure to keep your heels down.
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Thanks to Massachusetts riding
instructor license,
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instead of doing this.
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I might end up doing this.
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Now manual labor is honorable work and
I've done plenty of it. From bagging
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groceries and bussing tables to hanging
drywall and building decks. And every horse
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has done plenty of this.
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But it's probably not the best use of my skills
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and experience, and I certainly won't
make as much money.
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In economic terms this is known as a misallocation cost.
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The skills that I could apply to this end
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are, well, misallocated to this end.
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Licensing prevents people from putting
their talents to their best use.
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Our study finds this misallocation of resources
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costs to the American economy
as much as 197 billion dollars a year.
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The study also measures misallocation
costs by state.
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They range from 675 million in Rhode Island
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to 22 billion dollars in California.
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Here's another economic problem that licensing creates often livestock manure just piles up but
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it could be used to farm fertilizer and
that is a business opportunity.
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I could start a business anywhere in the country
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turning this waste into fertilizer for fields.
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Unless I live in Iowa.
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In the Hawkeye State getting
paid to shoot manure from
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behind a tractor requires a license. That
means fewer manure spreaders and
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less competition means higher prices for
farmers. Thank you.
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Years ago Nobel laureate Milton Friedman
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called this the Cadillac effect,
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forcing customers to pay for a Cadillac
when they'd rather pay for something
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just as effective but more economical.
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And because farmer Johnson has to pay more
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for my Cadillac services he has
less to spend on more important things
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around his farm, such as caring for a
needy animal.
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Together these represents a different kind of cost
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in our new Institute for justice report, deadweight loss
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to help us unpack this rather
imposing term we've come here to the
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Federal Reserve Bank of Chicago where we
caught up with report co-author
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Dr. Morris Kleiner. So doctor Kleiner what is deadweight loss? Those are losses in
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output due to increased prices due to
occupational licensing. And this occurs
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as a result of higher prices that consumers pay
which results in a loss in consumption.
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In the new report that you
authored for the Institute for justice
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you actually measured deadweight loss at
the national level what did you find?
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Our results found that it could be as much
as seven billion dollars per year.
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But you didn't stop there you actually
examined deadweight loss at the state
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level as well it's one of the really
unique contributions of your report what
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were your findings? Yes in the 36 states
where we found significant effects
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the costs range from 28 million in Rhode
Island to 840 million in California.
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And of course that doesn't include miss
allocation costs and jobs lost due to
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licensing, is that right? That's right.
losses nationally were as much as
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2 million jobs lost, and that range from 7
thousand jobs lost in Rhode Island to as
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much as a hundred and ninety six
thousand jobs lost in California
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Those costs are substantial but
seldom recognized.
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Seldom indeed when state legislatures
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create licenses they do so
because they think they're protecting
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public health and safety. But there's
little empirical evidence linking
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licensing to health and safety. But this
is not one of those problems with no solution
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eliminating needless licensing burdens
and if necessary replacing them
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with less restrictive options can lead
to more job opportunities
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increased economic output
and more equitable and
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efficient allocation of resources.
In future episodes we'll talk about what some of
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those choices are and why they're likely
better options. Until then click on the
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report icon to read more
from this report.
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