Data released by the Bureau of Labor Statistics in 2016 suggests that 22.3 percent of employed workers in the United States held an active occupational license. To obtain a license, workers are typically required to pay fees, complete minimum levels of schooling and training, pass exams and meet a variety of other requirements. As a result of the work of Morris Kleiner, the Institute for Justice, the Obama White House and a number of other researchers and public policy advocates, a renewed interest in the subject has emerged within the last several years. The Mackinac Center, for example, published a comprehensive report on licensing requirements in the state of Michigan just last year.
But measuring the impact that licensing has on the economy and consumers is difficult. Since unlicensed providers are operating illegally, there is no reliable data to compare their outcomes to those of licensed providers. Further, few states have ever delicensed occupations, making it difficult for economists to find a “natural experiment” to study — in this case, comparing outcomes from a period when licenses were required to a period when licenses were not required.
Despite this, there are data available to study the impact of a change in licensing that occurred in Alabama regarding barber licensure. For the 30-year period from 1983 to 2013, the state of Alabama did not require barbers to obtain a state license before they could work legally. But then the Yellowhammer State reintroduced a barber licensing requirement in late 2013. This provided a type of natural experiment to study, and this paper estimates the impact of the new occupational licensing requirement had on barbers and consumers in Alabama.
Barbering is universally licensed in the United States. The Institute for Justice published “License to Work” in 2012, a report that presents a snapshot of barber licensing requirements across states. Licensing fees in 2012 ranged from as little as $20 in Michigan to as much $330 in Kentucky. Education and experience requirements for the profession range from 175 days in Wyoming to 890 in Nevada. The wide variety of licensing requirements is a microcosm of what occupational licensing requirements look like for most professions from state to state.
In this paper, I estimate the effects of Alabama’s reintroduction of barbering licensing requirements on the receipts and growth of barber shops in the state. I rely on U.S. Census Nonemployer Statistics data for 2009 to 2014. I perform state-level comparisons of barber and beauty shops in Alabama, as well as comparing these Alabama statistics to that of nearby bordering states. In addition, I compare data from Alabama border counties to data from contiguous counties in Georgia and Florida.
The results of this analysis show that after barber licensing was introduced in Alabama, barber shop receipts grew 2.6 percentage points faster than beauty shops and barber shops per person grew 6.7 percentage points slower than beauty shops in the state. In other words, barber licensing requirements appear to have limited competition for existing Alabama barbers and they benefited with higher earnings. A similar result emerges when comparing barber shops in bordering states and bordering counties in Georgia and Florida. This comparison produces evidence consistent with the economic theory that occupational licensing restricts competition and harms consumers by limiting choice and increasing prices.