To examine the effect of new barber licensing in Alabama, I first compare average receipts for barber and beauty shops in the state, shown in Graphic 1. As noted previously, barbers and cosmetologists offer similar services and the demand for both services should be affected similarly by macroeconomic events — for example, drops in consumer income. In the graphs that follow, Alabama barber shops are represented by the solid black line and beauty shops are represented by the gray line. Receipts per shop — in thousands of dollars — are measured on the vertical axis.
Average receipts for barber shops increased from $15,200 in 2013 to $15,970 in 2014, a 5.1 percent increase. Average receipts for beauty shops increased from $16,300 in 2013 to $16,700 in 2014, a 2.5 percent increase. Following the adoption of barber licensing in Alabama, barber shop average receipts grew faster — a 2.6 percentage point difference — than beauty shop receipts. This suggests that the new licensing requirements resulting in increased earnings for incumbent barbers and squares with the general agreement in economic theory.
Graphic 1: Average Receipts in Barber and Beauty Shops in Alabama, 2009-2014
Note: All data from U.S. Census Nonemployer Statistics, 2009-2014.
Although all theories of the effects of occupational licensing would suggest a result like what is presented in Graphic 1, there is disagreement with respect to how the number of barber shops will be affected. In Graphic 2, I measure growth in barber and beauty shops per person per year in percentage terms.
Barber shops per person in Alabama shrank from 2013 to 2014 — falling by 5.7 percent. Beauty shops per person, on the other hand, increased in from 2013 to 2014 — growing by nearly 1 percent for the year. The gap in growth rates between the two shops is approximately 6.7 percentage points. It is possible that consumers in Alabama may be choosing to substitute cosmetology services for barbering services with more frequency after licensing takes effect. This result is supportive of the hypothesis that barber licensing is primarily restricting competition as hypothesized by Friedman and Stigler.
Graphic 2: Annual Barber and Beauty Shop Per Capita Growth in Alabama 2010-2014
Note: Data from U.S. Census Nonemployer Statistics, 2009-2014. Population data is extracted from the U.S. Census.
Although barber and beauty shops offer similar services, it is possible that slightly different trends may emerge for each of these different businesses. The clientele of beauty shops may have different tastes or preferences and this might cause unrelated differences to emerge. To address this potential inherent difference, I compare the same two variables for barber shops — average gross receipts and businesses per person — in Alabama to those in the bordering states of Florida, Georgia, Mississippi, North Carolina, South Carolina and Tennessee. In Graphic 3, receipts per barber shop — in thousands of dollars — are again measured on the vertical axis. Like beauty shops in Graphics 1 and 2, barber shops in these bordering states experience no change in licensing regulation in 2013.
Before Alabama introduced new barber licensing requirements, receipts per shop in Alabama were generally below bordering states. Alabama had average receipts of $14,890 in the years preceding 2013, while the next closest state was Tennessee at $16,820 and the average for all six bordering states was $18,160, or approximately 22 percent more prior to 2013. Following the implementation of new licensing in 2014, Alabama’s average receipts were $15,970, much closer to bordering states’ average of $17,160 and actually ahead of Georgia and Mississippi. This result is consistent with theory, namely that Alabama adding barber licensing requirements allowed barbers the opportunity to charge higher prices for their services.
Graphic 3: Average Receipts in Barber Shops in Alabama and Bordering States 2009-2014
Note: All data from U.S. Census Nonemployer Statistics, 2009-2014.
Turning to growth in barber shops per person — displayed in percentage terms on the vertical axis in Graphic 4 — Alabama’s average growth was slightly below the average of contiguous states in the years preceding 2013: 1.2 percent in Alabama vs. 5.8 percent in bordering states. After new licensing requirements were instituted, Alabama’s growth in barber shops per person fell significantly below the average of bordering states. In 2014, bordering states experienced shop growth per person of 2 percent on average. Alabama’s shops per person actually fell by 5.7 percent — a 7.7 percentage point difference relative to bordering states. This result also seems to support the Friedman and Stigler’s supply-side effect hypothesis that Alabama’s new licensing requirement is restricting competition.
In summary, both of these comparisons — barber and beauty shops in Alabama and barber shops in Alabama and bordering states — shed some light on the effects that new barber licensing had in Alabama. Barber licensing seems to have resulted in higher profits for existing barber shops and fewer opportunities for new barber shops. Relative to both beauty shops in the state and barber shops in bordering states, Alabama barber shop growth was notably lower. Taken together, it would appear that new barber licensing in Alabama is harmful to consumers and has the effect of restricting competition in the marketplace.
Graphic 4: Annual Barber Shop Per Capita Growth (%) in Alabama and Bordering States, 2010-2014
Note: Data from U.S. Census Nonemployer Statistics, 2009-2014. Population data is extracted from the U.S. Census.
For this analysis, I compare county-level data from Alabama border counties to contiguous counties in Georgia and Florida. Data were unfortunately very limited for other bordering states and it was not feasible to produce similar comparisons at the county level. In addition, data from several bordering counties in Georgia and Florida were sometimes redacted by the Census Bureau for privacy concerns resulting from a small sample size. I use the same set of outcome variables from the previous state-level analysis — receipts per shop and barber shop per person growth. The graphics below identify the bordering counties of Alabama and Georgia used in the analysis.
Graphic 5: Border Counties in Alabama and Georgia Used in Analysis
Georgia | Alabama |
Chattahoochee | Chambers |
Early | DeKalb |
Muscogee | Henry |
Troup | Lee |
Walker | Russell |
Graphic 6: Alabama and Georgia Bordering Counties Used in Analysis
Source: U.S. Census Nonemployer Statistics
Graphic 7 contains a comparison of barber shops in Alabama and Georgia counties before and after the adoption of barber licensing in Alabama in 2013. Prior to the adoption of licensing, Alabama experienced much faster growth in barber shops per person in its border counties compared to those in Georgia border counties. Barber shops per person grew by 5.9 percent on average from 2009 to 2013 in Alabama border counties compared to a decline of 15 percent of the same measure in Georgia border counties.
Immediately after the adoption of licensing, growth in barber shops per person in Alabama border counties slowed to an average of 1.9 percent and bordering Georgia counties entirely reversed the recent trend of decline and grew at a 2.2 percent average rate. This suggests that consumers in Alabama may now be frequenting shops in Georgia as a result of the new barber licensing law. Relative to the period before the adoption of licensing, Alabama border county shop growth is a full four percentage points lower.
Graphic 7: Georgia-Alabama Border County Comparison
Without Barber License, 2009-2013 | Barber Shop Growth Per Capita | Average Receipts Per Barber Shop |
Georgia border counties | -15% | $13,600 |
Alabama border counties | 5.9% | $15,100 |
With Barber License, 2013-2014 | Barber Shop Growth Per Capita | Average Receipts Per Barber Shop |
Georgia border counties | 2.2% | $15,600 |
Alabama border counties | 1.9% | $19,000 |
Note: Data (except population) from U.S. Census Nonemployer Statistics 2009 to 2014. Population data is extracted from the U.S. Census.
Receipts per shop grew in both sets of bordering counties after licensing went into effect in 2013, but grew much more quickly in Alabama. Receipts per shop increase by $2,000, or 14.7 percent, in Georgia counties, but increased by $3,100, or 25.8 percent, in Alabama counties. Both of these comparisons yield information very similar to the state-level analysis from the preceding section.
In summary, barber licensing is associated with a drop in barber shop growth and an increase in receipts per existing barber shop in Alabama. This is consistent with the theory of licensing inhibiting competition in the market for haircutting services in the state. I also observe evidence consistent with possible shifts in consumer demand from barbering services in Alabama to barbers in Georgia.
Graphics 8 and 9 identify bordering counties of Alabama and Florida used in this analysis for comparison purposes. Once again, data are not reported for some border counties by the Census Bureau as a result of the small sample.
Graphic 8: Border Counties in Florida and Alabama Used in Analysis
Florida | Alabama |
Escambia | Covington |
Jackson | Escambia |
Okaloosa | Geneva |
Santa Rosa | Houston |
Walton |
Graphic 9: Florida and Alabama Bordering Counties Used in Analysis
Focusing first on average barber shop per person growth, the comparison here is consistent with the previous analyses. Although shop growth falls after 2013 in both Florida and Alabama counties, growth decreases by a much larger magnitude in Alabama border counties compared to those in Florida: -7.8 percent to -3.6 percent, respectively. Interestingly, receipts per shop decrease in both Florida and Alabama bordering counties and by a similar amount.
Graphic 10: Florida-Alabama Border County Comparison
Without Barber License, 2009-2013 | Barber Shop Growth Per Capita | Average Receipts Per Barber Shop |
Florida border counties | 2.9% | $19,900 |
Alabama border counties | 1.0% | $16,700< |
With Barber License, 2013-2014 | Barber Shop Growth Per Capita | Average Receipts Per Barber Shop |
Florida border counties | -0.7% | $18,900 |
Alabama border counties | -6.8% | $15,400 |
Note: All data (except population) from US Census Nonemployer Statistics 2009 to 2014. Population data is extracted from the US Census.