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  • Occupational Licenses Are Killing Minority Entrepreneurship

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    Ashley N’Dakpri runs Afro Touch, a hair-braiding salon in Louisiana. She wants to hire more stylists to meet demand, but Louisiana’s strict occupational licensing regulations prevent her from doing so.

    Ashley legally isn’t allowed to hire new stylists unless they have a cosmetologist’s license, a certification that requires five hundred hours of training and thousands of dollars in fees to obtain. She notes that many potential employees are no longer interested in working for her once they discover the onerous occupational licensing requirements.

    State-level occupational licenses are a major barrier to minority entrepreneurship. These licenses prevent many minorities from starting their own businesses in fields across the economic spectrum.

    The beauty industry is perhaps the most egregious example of a field whose occupational licensing requirements prevent minority entrepreneurship, but these licenses are also found in many other industries popular with minority entrepreneurs, including construction, childcare, and pest control.

    Cosmetology licenses are often far more difficult to get than licenses for professions that deal with life and death. In Massachusetts, for instance, cosmetologists must complete one thousand hours of coursework and two years of apprenticeship before they are allowed to ply their trade in the beauty industry. Emergency medical technicians, by contrast, must only take 150 hours of courses to be allowed to work.

    What are these occupational licenses protecting consumers from? A bad hair day? These permits present an enormous entrepreneurial barrier to mostly minority women. According to a study by the Institute of Justice, Louisiana has just thirty-two licensed African hair braiders. In stark contrast, neighboring Mississippi, which has approximately four hundred thousand fewer black residents but doesn’t regulate hair braiding, has 1,200.

    California is the worst occupational licensing offender, according to IJ, putting up “a nearly impenetrable thicket of bureaucracy.” Basic trades such as door repair, carpentry, and landscaping require potential entrepreneurs to devote 1,460 days to supervised practice and spend up to thousands of dollars for a license before they can legally work.

    Nearly one-quarter of American workers hold a license, according to the Labor Department, up from about 5 percent in the 1950s. Unsurprisingly, a Federal Reserve Bank of Minnesota report concluded that minorities are significantly less likely to hold a license than whites.

    Research by economist Stephen Slivinski indicates that licensing requirements reduce minority entrepreneurship. He finds that states that require more occupational licenses have lower rates of low-income entrepreneurship.

    It’s already difficult enough for minority entrepreneurs to find a product that fills a gap in the market and outcompete established players without simultaneously worrying about the government hamstringing them through bad policies like excessive occupational licensing.

    With fewer government hurdles, minority entrepreneurs can more readily overcome racial economic gaps through their own inspiration and ingenuity.

    This column is adapted from the author’s new book, The Real Race Revolutionaries: How Minority Entrepreneurship Can Overcome America’s Racial and Economic Divides.”


    Alfredo Ortiz

    Alfredo Ortiz is the president and CEO of Job Creators Network.

    This article was originally published on FEE.org. Read the original article.


  • People Resent Businesses More In Highly-Regulated Industries

    There is a positive relationship between the amount of governmental interference in an economic arena, and the abuse and invective heaped upon the businessmen serving that arena.

    When I came across those words while reading Walter Block’s Defending the Undefendable, I was struck by the power of that under-appreciated insight (not to mention his great introduction to libertarianism opening the book).

    Block’s primary illustration was the rental housing market, where “the spillover effects of bureaucratic red tape and bungling” are blamed on landlords, rather than on the government policies and procedures that caused them. And he named rent control as a primary culprit, because it “changes the usual profit incentives, which put the entrepreneur in the service of his customers,” into incentives where “the landlord can earn the greatest return not by serving his tenants well.”

    Block’s conclusion applies far beyond just rent control. It describes many government interventions, not just those in the housing market. It characterizes price ceilings and price floors. It applies to taxes, particularly hidden ones. It extends to regulations that act like taxes or barriers to entry and competition. It also typifies inflation. And in each case, it is because the adverse effects of such government interventions, particularly reduced outputs and higher costs for the goods in question, set up providers to be incorrectly scapegoated as the cause.

    Rent control undermines landlords’ incentives to provide the services tenants want, because it denies landlords the ability to receive adequate compensation to make those efforts worthwhile. As a consequence, landlords not only get blamed for unwillingness to do what tenants want, but also for efforts to evade the controls, such as tying apartments to the simultaneous rental of furniture, parking or other goods, even though such evasions keep the available housing supply from falling as much as it would have otherwise. Other price ceilings follow the same script.

    Price floors such as minimum wage laws and “prevailing wage” requirements push prices up instead of down. The consequent higher prices and reduced wealth result from the coerced overpayment for inputs, rather than the fault of producers. But producers often end up getting blamed.

    Hidden taxes are another example. Government gets more resources and control, while those people directly deal with can be given the blame. The “employer half” of Social Security and Medicare is a prime example. Employers must pay 7.65 percent directly to the government, on top of the wages they pay employees. But since employers know they must bear those costs, they offer less pay for a given level of employee productivity. The consequence is fingering employers for not paying employees what they are worth, when that actually derives from government siphoning off compensation.

    Similar effects are triggered by employer-paid unemployment premiums, worker’s compensation insurance, and other non-wage forms of compensation. The resulting government rake-off from employees’ total compensation leaves them less to take home, triggering resentment at employers. But government claims credit for spending those dollars indirectly pickpocketed from workers.

    Even less hidden taxes, like sales and excise taxes (which can be better hidden as value-added taxes buried in the supply chain rather than added at the retail level, which is why so many politicians like a VAT), lead to scapegoating of suppliers. Those taxes place a wedge between what the customer pays including the tax and the smaller amount the seller receives net of taxes. But it is still all too easy for customers’ views of producers to reflect what they pay to their suppliers including taxes for services received, rather than the smaller amount sellers actually get net of taxes. To illustrate, when was the last time you actually looked at what your markets, gas stations, etc., actually received from you, apart from government’s take, even though that information is printed on your receipt?

    Government mandates and regulations also produce misaimed blame. Many regulations act like taxes (e.g., a producer doesn’t care whether a $100,000 burden of dealing with government is called a tax or a regulation), raising costs and prices to others, for which suppliers will largely be blamed. Regulations that create barriers to entry, like a cornucopia of licensing regulations, restrict supply and competition, leading to higher prices and shoddier performance, because they undermine the competition that is buyers’ most important protection against maltreatment.

    Inflation is another page from the same playbook of disguising the messenger as the cause. While it is caused by government expansion in the money supply, those in government can always point fingers at someone else: businessmen can be blamed for raising prices (and called monopolists or colluders in the process); workers and unions can be blamed for demanding higher wages; landlords can be blamed for raising rents; bankers can be blamed for charging higher interest rates, etc.

    The positive correlation between government involvement and the abuse and invective aimed at producers that Walter Block lays out holds across a wide swath of the economy. And that misaimed blame game is particularly to recognize, given how often politicians promise to unify us, but turn to techniques—price floors and ceilings, taxes, regulatory and entry restrictions, inflation, etc.—which guarantee the opposite effect. Such cognitive dissonance is an important red flag, because logical contradictions do not make for good policy.


    Gary M. Galles

    Gary M. Galles is a professor of economics at Pepperdine University. His recent books include Faulty Premises, Faulty Policies (2014) and Apostle of Peace (2013). He is a member of the FEE Faculty Network.

    This article was originally published on FEE.org. Read the original article.