Licensing rules are holding the economy back. Deregulation would unleash it

Len Shackleton

August 18, 2020

In the last twenty years, occupational regulation – government licensing of people to work in particular types of job – has risen sharply. Now, approximately one in five workers in the UK are subject to such regulation, which typically involves requiring academic and professional qualifications, work experience and tests of competence and committing workers to continuing professional development and codes of practice.

These may be desirable objectives, but it is unclear why so many occupations – from shoeing horses to taxi driving to art therapists to social workers – need to be regulated by the government. International comparisons show that there are huge variations in what is required, or not required, between similar countries.

Occupational regulation is often justified by the assumption of what economists call “asymmetric information”. The public is said to be uninformed and needs to be protected from incompetent or unscrupulous practitioners who could exploit their ignorance. This case is obviously strongest in medicine and related fields. However, these account for only a fraction of regulated occupations.

At a time when access to information has been expanding rapidly and many online rating apps and websites are available to aid consumer choice, it is unclear why government regulation needs to spread to new groups such as estate agents, private investigators and security guards, all of which have become subject to regulation in the last decade, or why nursing, social work and the police are now going to become all-graduate professions.

It is more often than not the case that these requirements have been lobbied for by unions and professional associations as a means of restricting competition and enhancing the prestige of their members rather than the ostensible reason of protecting the public.

A major recent study by OECD economists cites evidence from many countries that occupational regulation raises prices, reduces the number of market entrants and lowers employment while showing no clear evidence of improving perceived quality of services. Their own empirical work, using a new composite measure of occupational entry regulations, also suggests that productivity would be significantly enhanced in the UK and elsewhere by liberalising occupational rules.

In January the OECD, before the Covid-19 outbreak, was already calling for “bold reforms easing occupational entry regulations, especially those concerning qualification requirements”. They argued that, apart from its other benefits, relaxation of entry requirements would open occupations to a range of disadvantaged groups (including migrants) who lacked formal qualifications but possessed other skills.

This argument is reinforced by the circumstances we find ourselves in today with new labour market entrants, and those older workers losing their previous jobs, facing extremely bleak career prospects in the face of rising unemployment.

Making it possible for graduates to teach in state schools without undergoing teacher training (as is common in private schools) or for nurses to enter the profession without having to enrol for a degree, or for people to become social workers without a degree in social work, or to become estate agents without formal qualifications, or even work at all in childcare (where some women of colour are effectively excluded by recent requirements) would open up individual opportunities and make feasible new business models.

The possibility of a review of occupational regulation was reputedly being considered some time ago. The government should now, as a matter of urgency, seek to open up jobs and careers to as wide a range of applicants as possible to help mitigate the consequences of the recession.

If the public really needs to be protected, concern should be directed, as the OECD puts it, towards the output of businesses and services, rather than the input of employees. Employers (and the self-employed) need to be able to determine the best way to serve the public, rather than having to follow a government-dictated blueprint.

Author

  • Professor Len Shackleton is an editorial and research fellow at the Institute of Economic Affairs and professor of economics at the University of Buckingham.

Written by Len Shackleton

Professor Len Shackleton is an editorial and research fellow at the Institute of Economic Affairs and professor of economics at the University of Buckingham.

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