2 January 2018

Why is government holding workers back?

By Len Shackleton

Around one in five British workers now needs a licence from government to practise their chosen occupation. This proportion has doubled in the last 15 years. A further fifth of workers are certified by government agencies and employers often ask for the certification, even though it is not a legal requirement.

These are not all doctors, nurses or lawyers: licensed occupations include social workers, chiropractors, art therapists, childminders, security guards and farriers. Twelve new occupations have been registered this century and more are in the pipeline. Typically, licensed workers must possess certain qualifications, undergo specified training, adhere to codes of practice, engage in continuing professional development and pay annual fees to a government-endorsed regulator.

This is usually justified by the need to protect an uninformed public from harm caused by incompetent or unscrupulous practitioners. However, regulation has increased at a time when consumer information has been expanding rapidly and there are new ways of ensuring quality and value for money through comparison sites and online ratings.

The rationale behind the need for licensing, based on perceived market failures, has been shown in many cases to be unconvincing. It reduces competition, raises prices and excludes many competent people from occupations, often without significantly improving quality of delivery. It also threatens to inhibit progress in fields where rapid technological change promises to raise productivity and bring improved service and lower prices.

As Adam Smith and Milton Friedman have argued, licensing seems mainly to serve the interest of the members of the occupation. As the Professional Standards Authority for Health and Social Care have argued, regulation is often seen as a badge of professional status, rather than a system to be applied where risks justify its intervention. It is actively sought by occupational groups which wish to keep out competitors.

Even where a “public interest” concern has been the proximate cause of the introduction of licensing, this is often the consequence of an over-reaction to particular events – such as the furore over phone hacking which led Theresa May, when Home Secretary, to require private investigators to be licensed,  even though rogue operators were already clearly in breach of the law. Producer interests have had a disproportionate influence on the regulatory process, leading to the creation of substantial “rents” – pay in excess of that for other similarly skilled jobs where a licence is not required to work. This distorts the labour market and the distribution of earnings.

Licensing makes it more difficult and expensive to enter occupations; older workers and labour market returners find it difficult to join a new career path; social mobility is reduced. This has been a signficant problem in the United States, so much so that Obama’s White House issued a major report calling for a halt to a process which had barbers, flower arrangers, interior decorators and other rather exotic occupations become protected groupings. Even the European Commission has expressed concern: in early 2017 it put forward a proposal for a new Directive to bring in a “proportionality test” for occupational licensing.

We should resist further attempts to regulate. Where a new problem is perceived – there is one at the moment with the quality of nursing assistants – we should look to place far more emphasis on the responsibilities of employers, rather than setting up yet another new regulatory body.

A comprehensive review of all existing licensing is needed. New technology is undermining the traditional arguments for exclusivity for professional practitioners. In medicine, artificial intelligence is achieving better diagnostic results in some areas than radiologists or GPs. Lawyers are using AI rather than juniors to speed search for precedents, and blockchain technology looks likely to replace the role of solicitors in conveyancing and other forms of property transfer.

Where some intervention is thought to be justified, we should look at the most appropriate form of regulation. In many cases it should be possible, without safety or quality concerns, to substitute simple registration for full licensing, and in many cases certification for registration. Moreover, government certification can be replaced by private accreditation (long the case for accountants, for example).

More generally, we should recognise that free choice by consumers and experimentation by providers offers the best hope for productivity and real income gains. Occupational licensing is too often the result of government over-reach and lack of faith in, and understanding of, the way in which a free economy operates and a free society ought to allow individuals to make appropriate decisions for themselves – both as consumers of services and potential providers of these services.

A version of this piece appears on the IEA website

Len Shackleton is an Editorial and Research Fellow at the IEA