Thursday, June 28, 2012

Regulation: Making sure we are protecting the right people

By Matthew DeVeau, Project Associate

As I settle into my new job here at Market Street, I am reminded of the fact that, like some untold number of Americans, I made a career change to get to where I am today. I spent my first few years in the workforce in the communications field (broadly speaking), and have since shifted into the world of community and economic development. Along the way, I acquired some necessary new skills and spent two years earning a Master’s degree and the accompanying pile of student loan debt (enjoy those monthly interest payments, America). But I didn’t have to get a license. The State of Georgia does not regulate my ability to conduct demographic research or develop a Target Business Analysis as a part of my gainful employment. Unfortunately, the same cannot be said for Jestina Clayton of Centerville, Utah.

Clayton was recently featured in an article in The New York Times Magazine as an introduction to the topic of overly burdensome professional licensing requirements. I highly recommend the full article and the related Planet Money podcast from NPR, but I’ve provided a quick summary below.

Clayton, a native of Sierra Leone, had a small business in which she braided hair in the traditional African style. But she soon discovered that she was in violation of a state law that requires anyone who styles hair for money to have a cosmetology license. Acquiring such a license would have required more than a year in school and $16,000 in tuition. She applied for a waiver to the state cosmetology board, but the board – comprised mostly of license holders – denied her request. Clayton opted to close her business.

Clayton was up against a phenomenon known as “regulatory capture,” where business groups influence regulation to their own benefit. In this case, Utah cosmetologists erected a steep barrier to entry to their field to lessen the number of new entrants and funnel more clients to established, licensed cosmetologists. According to the Times Magazine article, such practices are becoming increasingly common – 30 percent of American jobs now require licenses, up from just five percent in 1950.

That’s a problem for would-be career changers, and as University of Chicago lecturer Charles Wheelan points out in the podcast, it could also be trouble for people who move from place to place because regulations differ by state. Indeed, some states would allow Clayton to practice her craft after passing a hygiene test and paying a small fee.

These limits to mobility – both occupational and geographic – add up to a major problem for the economy. Jacob Goldstein, the author of the Times Magazine piece, sums it up nicely:

“Our best shot at creating a decent economy in the future will come from making it easier for workers to shift out of dying careers and into promising ones. Workers need to be able to experiment and to fail (quickly and often) until they find the real, valuable skills that customers will pay for. This will take years. And in order for them to do that, we need to start by making it easier to braid hair in Utah.”

So how do we actually go about doing that? The answer certainly isn’t total deregulation. After all, licensing requirements were originally conceived for an important reason – public safety. As consumers, we want to be certain that our trip to the barber shop or hair salon won’t result in physical harm. We especially want our doctors and airline pilots to be thoroughly vetted.

The solution, it seems, is to determine which regulations protect us from harm and which serve only to protect a narrow special interest – and then eliminate the latter. Of course this isn’t so easy in practice. Parsing that distinction won’t always be easy, and as the Times Magazine article points out, any such changes are frequently met with strong resistance from the affected group of licensed professionals.

But the implementation doesn’t have to be overly complex.

In the case of hair, I think it makes sense to require stylists to pass a rigorous safety examination and pay a fee to cover the government’s administrative costs. Anyone who receives additional training at cosmetology school can advertise as “certified,” and those who don’t must clearly disclose that they are not. This would keep the public protected and informed while allowing people like Jestina Clayton to stay in business.

Such a process won’t be easy, but as someone who has gone through a career change, I believe it’s worth the effort.