In his article, The Protection Racket of Occupational Licensing, Brian Phillips explains one of the more common problems with licensing:
Across the nation, millions of entrepreneurial Americans seek to create jobs, pursue their passion, or simply make a few extra dollars by starting their own business. But often, they are forced to abandon their dreams, not because they lack talent or capital, but because they do not have the government’s permission.
New Jersey resident Ernie Arias is one example. His business installs home entertainment equipment and he decided to add security systems to his list of services. However, the state of New Jersey requires more than three years of classes and experience before it will grant an occupational license to locksmiths and security installers. Arias abandoned the ideaPhillips's article contains a litany of similar stories.
Adam Smith, in his Wealth of Nations, was the first to regard negatively the idea of licensure, as well as apprenticeship:
The patrimony of a poor man lies in the strength and dexterity of his hands; and to hinder him from employing this strength and dexterity in what manner he thinks proper without injury to his neighbor, is a plain violation of this most sacred property. It is a manifest encroachment upon the just liberty both of the workman, and of those who might be disposed to employ him. As it hinders the one from working at what he thinks proper, so it hinders the others from employing whom they think proper. To judge whether he is ﬁt to be employed, may surely be trusted to the discretion of the employers whose interest it so much concerns.Interestingly "Occupational licensing is one area where there are fewer regulations affecting the labor market in Europe than in the United States." (ibid.)
The Cato Institute points out that:
One would be hard-pressed to think of a major labor market institution that is growing faster than occupational regulation. Unlike unions, which have declined from about one-third of the workforce 60 years ago to about 12.5 percent in 2005, the regulation of occupations has expanded dramatically...Why is licensing so popular? Cato explains:
Occupational regulation has grown because it serves the interests of those in the occupation as well as government. Members of an occupation benefit if they can increase the perception of quality and thus the demand for their services, while restricting supply simultaneously. Government officials benefit from the electoral and monetary support of the regulated as well as the support of the general public, whose members think that regulation results in quality improvement, especially when it comes to reducing substandard services.But what about doctors? Licensure is important for them, right? The research is not so sure. Cato says:
Medical malpractice insurance premiums can also serve as a measure of professional competence. If licensing works as intended, for example, licensed health care practitioners should make fewer mistakes that would result in fewer lawsuits relative to unlicensed practitioners. The insurance industry presumably would provide lower premiums for practitioners in regulated states because incompetent or unscrupulous practitioners would have been weeded out through higher general and occupation-specific education requirements, testing, and background checks provided by licensing. But the evidence is not supportive.