We tend to think of small business owners shunning government regulation. We hear about job creators needing the government to stay out of their way in order to create a business environment that would allow them to hire. But when that regulation happens protects their business they may be all for it.
On a national scale we talk about job killing legislation, and to a degree that very much does occur. But it’s not necessarily in the form of healthcare laws or even tax policy. Things like a complex building permit process or too many stages of inspectors for construction can kill jobs and cost money. Or passing laws that create new agencies, and then those agencies have 2 years to come up with the rules for the industry they will regulate. This can create havoc and uncertainty that does hamper business.
Local vs Federal Regulation
But we rarely talk about the distinction between regulation at the state/local level compared to the federal rules. Most professional licenses are issued at the state level and those licenses carry a barrier to entry into that profession. Attorneys are a good example. As are dentists. You very much want them to carry a license to practice their profession. We like that these people are licensed, and if they do something terrible that license can be taken away.
However are licenses necessary for every profession? What about cosmetology? Is a license needed to practice cosmetology? On the surface it might seem logical. You wouldn’t want someone doing your hair who only specializes in nails. Cosmetology schools teach all the fundamentals.
Maybe though this is a place where the free market can regulate the problem for us. Any moderately intelligent consumer will check with their network, or at least online reviews, before going to a new place to cut their hair. When you arrive you aren’t going to be looking for a license. You already know they’re good, and the fact that it took you two weeks to get an appointment alone will make you like whatever they do to you hair.
Likewise, even if a nail place does display the proper license, you probably aren’t going to ask them to cut your hair and they’d say no if you did. This is all taken care of thanks to the market sorting out the problem. If I wanted to start my own hair place I’d have to probably start on friends and family in order to build up a large enough customer base to be profitable. Or if I wanted to work for an existing place I could apprentice for a while.
Actual job killing legislation
Why then does one need a license to practice what is essentially art? Because the people that run the existing businesses want there to be licenses. They want to keep people out of their industry. The licensing process grants them more monopoly power because not anyone can enter their industry over night. This is exactly what’s happening to a woman in Utah who wants to do African braiding. A practice not offered anywhere near her and something she learned because she’s from Africa. But Utah wants her to go to school for a while first to get a license. It will set her back $16 grand. She can’t afford that and so she can’t get her business going. A job or two is lost, and a market that is willing to pay for her services goes unfulfilled.
Part of the reason the economy has been slow to recover is that it’s difficult to get up and running with places that would create jobs. The woman in Utah (linked below) could have a thriving business with a few employees by now if she were allowed to bypass the cosmetology process.
Obama and other politicians talk about getting our unemployed retrained. But that process can take months or years, time they just don’t have. Most people have to take the $10/hr job today because they can’t wait two years to train for the $20/hr job.
If you truly believe that government does get in the way of an economic recovery, look at situations like this. Petty regulation that is often at the state and local level that is meant to protect the livelihoods of a few at the expense of others. It’s not always taxes, and it’s not always the feds.