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Raising prices and reducing opportunities in one easy lesson

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.

Adam Smith (1776). Wealth of Nations (I.10.82)

Restraint of trade comes in many forms.  One is in the form of price fixing by sellers.  Price-fixing agreements have long been unenforceable  under common law, but the practice was made expressly illegal under the Sherman Antitrust Act, passed in the late nineteenth century.  Our national policy attempts to promote competition.

Another form of restraining trade is for producers in the industry to get together and lobby the legislature to erect what economists call “barriers to entry” to make it hard for new competitors to get into the industry.  We see state legislatures protecting those in some politically potent professions at the expense of both potential competitors and overall competition.  What this means is the favored get to work in particular professions while newcomers must jump over hurdles to get a job in that area that often contribute to neither the worker’s productivity nor the safety of the public.  At the same time, these restraints of trade make the good or service more costly without reducing risk to the buyer or improves value to the buyer.

Here is a recent opinion article from the Louisiana political blog The Hay Ride, which notes that occupational licensing in Louisiana makes it harder for Louisiana workers to get jobs than in other states.  Louisiana is cited by a study from the Institute for Justice as having more occupations covered by licensing than any other state and our license requirements are among the toughest.  Here is a video from the Institute for Justice on occupational licensing.  As thOne of my favorite examples of unneeded occupational licensing is for massage therapy.   What protects consumers from ill prepared or unprofessional massage therapists if they were not licensed?  Those therapists businesses would shrink to a level that they could not make a living as they get no repeat business, and it gets around that they are not very good.  In other words, people do not get massages from people they think “rub them the wrong way.” 

And even worse, the gain to those in the profession only comes to those who got in before the licensing.  Those who get in later have to pay for the extra schooling and the licensing fees. 

-MC

10 Responses to “Raising prices and reducing opportunities in one easy lesson”

  1. MG says:

    Licensing for certain professions or areas of industry is really not too much to ask. A doctor, for example, should “jump through hoops” in order to practice. Surgeons and emergency medical personnel (not just doctors but nurses and EMTs as well) in particular should be competent in their profession. They literally hold the in their hands the difference between life and death. But massage therapists?!?!? Really? Licensing serves three purposes. The first is, of course, regulation, which is usually put at the forefront for reasons of instituting the regs. But, licensure also and fervently serves the purpose to increase tax revenue for government and to limit entry into the field. Notably, the State of Louisiana does have the highest amount of required licensure than any other state. One would think that with all of that revenue being generated and so many “licensed and professional” entities and persons, then the state would soaring above all other states in the way of economics, commerce and prosperity. But it isn’t. Anyone in the State of Louisiana who is aware of the state’s checkered past with corruption can raise questions about the overabundance of taxation and regulation with the fact that we are now facing budget deficits. The cost of most licenses and the requirement to fill those licenses are also rather costly. How many potentials or hopefuls look away from the prospects of entering a field because of financial restaints? So who is gaining from so many license requirements? Is it the consumer who gets a “better” product or service? Or is it the government that collects the revenue? Or further still, is the class of elites who dominate a certain field who are less likely to face competition from those newly entering the market? As mentioned earlier, yes certain professions should be licensed, health professions are a prime example, but even still in this regard let me iterate that licensure is still no guarantee of the quality of services even with the health professions by sharing a joke I heard many years ago. It highlights that licensure doesn’t necessarily mean best or professional.

    Q; What do you call someone who graduated LAST in their class from medical school?

    A: Doctor

    • KM says:

      License are necessary in most work fields this way when you hire the person you know they have been educated in how to do this job. This way you wont have someone in your business who doesn’t know what they are doing.

  2. SS says:

    I feel like it is important to have licenses because it allows people to know the employees are qualified and are most likely going to do their best; therefore the willingness to pay a little more might increase.

  3. SS says:

    Licenses are necessary for most businesses to run properly. Jobs near and far pair require licenses such as waitresses and bartenders, hair dressers, and electricians etc. licenses give proof that the employee is qualified to do their job correctly. It also give customers a sense of security when they are paying for the good or service.

  4. BH says:

    Licensing is something I believe in very highly. If a business is trying to succeed then it needs to have license employees that can provide the common service. As a consumer I would want to spend my money on the best service possible, so as owner your employees must be preforming a quality of skill to keep business going.

    • SS says:

      I agree with your statement because licenses are a must because people want to know they are getting the best for their money.

  5. RW says:

    This reminds me of the beginning of the year with the whole demand lectures . Licensing should be required so that the massage therapist can be professional. I do not see how they could be unprofessional and licensed. If they are bad at business that is the way businesses work. Demand goes down then their prices would have to drop till they could compensate for thier lack of customer satisfaction.

  6. GR says:

    I believe that licensing can help and hurt a society like many other things. Licensing gives people in a specific field verification and updated knowledge. These licenses although can be very costly and excessive. This commonly causes a surplus in that specific field, for example x ray tech has become the new field to go into due to its quick and easy licensing process. But then there are very few jobs available with it being in such a high demand after so many graduate. It gives workers a faster process then a four year degree but it does not always pay off.

    • mcoats says:

      Licenses reduce supply and increase prices.

      -MC

    • KM says:

      Really good points with the xray tech. I always think licensing makes everything better but you are right if you choose to get a license in something that doesn’t have a high supply then the demand will go down.

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