Licensing boards claim to help, but new report exposes the lie

Tree trimmers sometimes leave behind messes, along with angry customers. Complaints are easy to find in Nevada, where no occupational license is needed for the work. But negative reviews are just as common in California, which licenses the industry.

“Instead of cutting large limbs into manageable pieces, he’d cut heavy limbs that would swing wildly, smashing into the fence and dropping into our yard,” one California homeowner writes on Yelp. “Several of my shrubs were smashed and decapitated, and the fence was broken.”

The online scores seem counter-intuitive. If California licenses tree trimmers, they should provide comparably superior service than their counterparts in Nevada, or so the conventional wisdom holds. Yet, a side-by-side comparison of Yelp ratings for tree trimmers shows occupational licensing makes no statistically significant difference.

The same thing happens in reverse with interior designers. Nevada requires a license for the occupation; California does not. Yet Yelp ratings are similar in both locations.

Our public interest law firm, the Institute for Justice, conducted similar Yelp comparisons for numerous occupations across the nation in neighboring states with different licensing regimes. Results were consistent: occupational licensing does not improve quality. It might even do harm.

To control for as many variables as possible, focused on similarly situated communities in close proximity on either side of state lines. For California and Nevada, data came from the counties surrounding Lake Tahoe. The Potomac River provided another dividing line between Maryland and Virginia, and the Delaware River provided a diving line between Pennsylvania and New Jersey. Additional comparisons came from the Tri-State area, which covers parts of Connecticut, New York and New Jersey.

Overall, we studied nine geographical pairings and six types of service providers: barbers, cosmetologists, manicurists, interior designers, locksmiths and tree trimmers. “Raising Barriers, Not Quality” details the findings.

The report undermines the claim that occupational licensing protects consumers by screening out workers likely to provide inferior service. All that really happens is interference in people’s ability to earn an honest living. Lower-income and middle-class families suffer disproportionately, especially during economic downturns.

Nevada and California ignore the harm. Prior research from the Institute for Justice, which examines the licensing of 102 lower-income occupations, shows that Nevada is the second-most broadly and onerously licensed state, while California is the worst.

Both states have some of the highest average licensing fees and impose steep education and experience requirements upon lower-income workers. In some occupations, costly education mandates can trap aspiring service providers in student debt they cannot afford to repay.

People can trim trees without a license in Nevada, and they can do interior design without a license in California. But both states require government permission to work in many other lower-income occupations. The oversight might make sense if it actually improved quality, but our analysis of Yelp data tells a different story.

Despite the occasional one-star review, most customers are happy with the service they receive, regardless of the regulatory rigor where they live. Service providers generally do a good job because they need customers to come back—with their wallets.

This has always been the case. Occupations that the government does not regulate are not “unregulated.” Competitive pressure, third-party certification and the threat of litigation, among other things, all keep companies accountable. Perhaps most influential is word-of-mouth marketing.

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Social media platforms and review sites like Yelp, Angi and TripAdvisor give consumers a greater voice than ever before. Instead of sharing their experiences with just family and friends, they can tell complete strangers about rude treatment or lack of skill. Barbers who give bad haircuts cannot survive for long in such an environment. Neither can locksmiths who damage cars or manicurists who damage nails.

Digital technology and the power of crowdsourcing has made many licensing regulations obsolete. Instead of a single government board serving as gatekeepers for an entire industry, service providers now must answer to hundreds or even thousands of citizen inspectors.

Occupational licensing regimes claim to help. But our analysis exposes the lie.

Dick M. Carpenter II is co-author of “Raising Barriers, Not Quality” and senior director of strategic research at the Institute for Justice in Arlington, Virginia Daryl James is an Institute for Justice writer.