Public choice theory and occupational licensing.

• Author: Larkin, Paul J., Jr.
• Position: Introduction into III. The Traditional Constitutional Analysis of Social and Economic Legislation D. The Backlash Against the Backlash Against Lochner, p. 209-254 - Thirty-Fourth Annual Federalist Society National Student Symposium

Introduction I. The Prevalence of Occupational Licensing II. A Public Policy Analysis of Occupational Licensing A. The Justifications for Occupational Licensing B. The Criticisms of Those Justifications III. The Traditional Constitutional Analysis of Social and Economic Legislation: Looking Back at Lochner v. New York A. The Police Power Before Lochner B. The Lochner Decision C. The Backlash Against Lochner D. The Backlash Against the Backlash Against Lochner 1. The Rehabilitation of Lochner 2. A New Old Fundamental Right to Property E. The Effort to Find a New Source for Property Rights Protection IV. An Alternative Approach to Judicial Review of Social and Economic Legislation A. Treating Political Corruption as an Illegitimate State Interest Under the Equal Protection Clause 1. Identifying Illegitimate State Interests 2. Treating Rent Creation and Rent Extraction as Bribery and Extortion 3. Proving an Illegitimate State Interest B. Treating Occupational Licensing as a Violation of the Private Delegation Doctrine Under the Due Process Clause C. The Political Justification for Heightened Judicial Scrutiny Conclusion Introduction

Ask someone to identify the principal growth industries in America, and you are likely to hear responses such as software development, cybersecurity, the home health care industry, government contracts consulting, and political campaign management. What you may not expect to hear is that lines of work requiring an occupational license are among the fastest growing types of employment in the United States. (1)

Licensing is one of three basic forms of occupational regulation. (2) Registration obliges an individual to file his or her name, address, line of work, and qualifications with a relevant state or local agency, and perhaps also to pay a fee or post a bond. Certification, an intermediate form of regulation, permits anyone to practice in a particular field, but the government or a private association identifies an applicant's educational or skill level, typically based on an examination, and issues a certificate to that effect. Licensing is the most rigorous form of occupational regulation. A license is a grant of permission to enter a particular line of work. Licensing laws make it unlawful, and sometimes illegal, to practice in a particular field without first receiving the government's approval. (3) A state adopts registration, certification, and license requirements under its "police power," the inherent sovereign authority to regulate private conduct for the purpose of protecting the health, safety, and welfare of its residents. (4)

The public is familiar with the concept of occupational licensing but likely is unaware of its extent. When most people think of that term, the images that come to mind likely involve healthcare (physicians and dentists), law (attorneys and judges), or finance (stock brokers and accountants). But the world has changed markedly since The Adventures of Ozzie and Harriet was a staple on television. In the 1950s, the American economy rested on manufacturing, and only an estimated four to five percent of employees worked in an occupation requiring a license. (5) But the economy today is service-oriented, and the number of licensed positions has skyrocketed. (6) According to a July 2015 White House report, since 1950 the percentage of the domestic workforce in positions requiring licenses has multiplied five-fold to approximately twenty-five percent. (7) Part of that increase is attributable to the increase in the number of employees in the service economy, because workers who offer services are more likely to be subject to licensing than employees who manufacture widgets. (8) But two-thirds of that expansion is due to an increase in the number of occupations subject to a licensing requirement, particularly in nontraditional lines of work. (9) Occupational licensing is now one of the nation's most widespread and fastest growing forms of labor market regulation. (10)

Contemporary occupational licensing schemes have ancient roots. (11) Rudimentary forms of medical licensing existed in Germany, Naples, Sicily, and Spain in the thirteenth and fourteenth centuries. (12) Medieval guilds limited entry into various occupations. (13) The American Colonies subjected bakers, ferry workers, innkeepers, lawyers, leather merchants, and peddlers to early forms of regulation. (14) In nineteenth-century America, states and localities licensed barbers, embalmers, horseshoers, boarding house operators, insurance agents, midwives, pawnbrokers, physicians, real estate brokers, steamboat operators, undertakers, and veterinarians. (15) But the present occupational licensing system began in the last quarter of the nineteenth century. By that point more than half of the states required licenses to practice as a physician, dentist, pharmacist, or lawyer. (16)

States have developed a common licensing apparatus. Ordinarily, legislatures create licensing boards, and governors frequently appoint members to those boards from within the profession itself. (17) The legislature defines occupational qualifications or empowers the board to do so. The most common requirements involve formal education, prior experience in the form of apprenticeships or internships, examinations, and good character. (18) The board prepares qualifying exams, sets the pass rate, reviews applicants, adjudicates complaints against practitioners, and performs other ancillary tasks. (19) The process has operated in a consistent manner for more than a century.

Occupational licensing, however, has had its critics. A large number of federal government officials, (20) scholars, (21) and other commentators (22) have criticized the widespread use of occupational licensing requirements. In their view, the great majority of such programs hurt rather than help consumers. Indeed, some scholars have found that many occupational licensing schemes are the product of practitioners' self-serving political efforts, rather than a considered attempt to improve the public welfare. (23)

To know which of those two sides has the better argument, it is necessary to answer several questions: What occupations are subject to licensing requirements? Why do legislatures impose licensing requirements on those occupations? More generally, why do legislatures adopt regulatory programs, of which occupational licensing schemes are but one example, for particular fields? This Article will examine the prevalence of occupational licensing, the rationale for that form of regulation, and its costs and benefits.

The result is not uplifting. Far too many legislatures have restricted entry into far too many professions for reasons that are far too weak to justify those requirements. Legislators have often used occupational licensing programs for reasons that have too little to do with public health and safety to believe that those licensing programs serve the public. Licensing requirements have become vehicles for cronyism at the public's expense. So far, the Supreme Court has refused to squelch that enterprise, in part because ever since the New Deal, the Court has been quite reluctant to second-guess social and economic tradeoffs made by the political branches. Indeed, the Court has declined several opportunities to do just that. This Article, however, offers two new challenges that critics can raise. These claims do not require the courts to second-guess the political tradeoffs that legislatures make.

Section I addresses the extent of occupational licensing. Section II discusses the rationales offered in support of occupational licensing and the criticisms advanced against those defenses. Section III discusses the Supreme Court's 1905 ruling in Lochner v. New York, (24) the decision that has come to epitomize (rightly or wrongly) the Supreme Court's early twentieth century willingness to second-guess legislative social and economic judgments, an inclination that most academics today find misguided, if not illegitimate. Section IV then identifies and discusses several legal challenges that could be raised against occupational licensing requirements, evaluates the likelihood of their success, and outlines what steps can be taken to preserve the benefits of occupational licensing schemes while eliminating or reducing their social costs. In particular, that Section uses Public Choice Theory to examine the justifications for licensing regimes and finds those defenses quite porous.

1. THE PREVALENCE OF OCCUPATIONAL LICENSING

   Occupational licensing requirements are widespread throughout our economy. (25) The core group of licensed occupations includes architecture, engineering, law, real estate, and various health-related positions. (26) But that is not all. A July 2015 White House report estimated that states regulate more than 1,100 occupations, but fewer than sixty are licensed in all fifty states. (27) A 2012 nationwide study of state occupational licensing requirements examined 102 different occupations in diverse fields. (28) Some occupations, such as ones in health care, are directly related to protection of the public health and safety. Many occupations, however, bear no credible relationship to those needs. Among them are the following: "animal breeders" (29) auctioneers, ballroom dance instructors, (30) barbers, (31) bartenders, cosmetologists, court clerks, door repair contractors, "fishers," (32) florists, funeral attendants, interior designers, (33) landscape workers, manicurists and pedicurists, (34) "milk samplers," (35) "packagers," (36) painting contractors, plumbers, "skin care specialists," (37) taxi drivers, taxidermists, tour or travel guides, tree trimmers, and upholsterers.* 38 Other observers have found additional occupations subject to licensing requirements, such as beekeepers, (39) "burial societies," cat groomers, (40) chimney sweeps, elevator operators, fortune tellers, (41) frog farmers, (42) "home entertainment...