One of the most egregious ways that government favors insiders is occupational licensing, typically presented as a way to protect consumers. Economists Morris Kleiner and Alan Krueger documented that, in the late 1950s, less than five percent of American workers needed some form of occupational license. Licensing in fields with a real public-health impact — pharmacy, say — may protect some consumers, but it’s hard to see why the person selling you flowers or your eyeglass frames needs certification.
Licensing can deter someone from starting a new job or experimenting with new occupations. If you think that you might like to be a florist, you could just try it out, in a free environment. If floristry requires a long process of certification, though, you’re more likely to stick with your current job. Occupational licensing also makes it harder to move across states to seek work, since licensing requirements vary.
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Government rules also deter job creation by mandating extensive employee benefits. The most obvious costs come from Social Security, workers’ compensation, and Medicare, which cumulatively average $2.85 per hour — increasing the effective hourly minimum wage from $7.25 to more than $10. The Fair Labor Standards Act also requires overtime pay for nonexempt workers. Other rules have made it easier for workers to sue their employers, adding a further potential cost to hiring.
Individual states and localities impose rules that drive up employment costs, too, such as Oregon’s $12 minimum wage or the $16 minimum wage in Seattle. The national minimum remains too low typically to have much impact on older workers, but it does matter for the employment prospects of younger workers with fewer skills. Economist Jeffrey Clemens found that Congress’s 2007–09 increases in the national minimum wage decreased the probability of being employed by about 5 percentage points for workers between the ages of 16 and 30 who lacked a high school diploma, in states that had previously kept their minimums low. In other research, Clemens and Michael Wither found that minimum-wage hikes led to similarly substantial reductions in the probability that minimum-wage workers would rise to monthly earnings levels over $1,500.
Edward L. Glaeser, “How to Fix American Capitalism”, City Journal, 2020-12-13.
November 13, 2026
QotD: Occupational licensing, regulation and economic slowdown
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