Alternatives to occupational licensing
Although it has become the default, occupational licensing is not the only form of regulation that can be used to ensure the quality of services. Policymakers have a range of alternatives that can be tailored to the specific harms licensing is currently being used to address. Occupational licensing is a blunt instrument with substantial costs and should only be used when the benefits to licensure outweigh those costs. Before imposing new licensing requirements or when reviewing existing licensing laws, policymakers should find evidence of harm and use the least restrictive form of regulation to reduce that harm.
The Institute for Justice designed The Inverted Pyramid, which provides a hierarchy of the alternatives to licensing. The options range from market competition with no regulation to the strongest form of regulation, occupational licensing. The first four options are voluntary and non-regulatory, that can encourage quality services with little government involvement. Sometimes, this is all that is needed to protect consumers. If government intervention is necessary, as is the case sometimes, there are seven additional options of increasing stringency
When service providers are forced to compete against each other for consumers’ business, the lower quality providers will be driven out as consumers stop patronizing them and switch to higher skilled providers.
Quality service self-disclosure
Professionals help inform consumers about their quality by making their reviews from past consumers easily available, allowing consumers to compare the satisfaction between providers.
Professionals can obtain voluntary credentials from 3rd party organizations that attest to their education and experience, demonstrating their quality without erecting barriers to entry into the profession.
Voluntary bonding or insurance
In services that pose a greater risk to consumers, professionals can obtain bonding or insurance to guarantee consumers protection from their failure to fulfill an obligation or losses from a mistake.
Private causes of action
Allowing consumers to bring lawsuits against service providers who injure them, or making it easier for them by allowing them to sue in small claims court or collect court and attorney fees, can force providers to adopt standards that prevent harm or drive the low skilled providers from the market.
Deceptive trade practices act
All 50 states currently have deceptive trade practices acts that protect consumers from predatory or negligent practices by service providers, so these can be used to hold low quality professionals accountable if their negligence harms consumers.
The inspection of facilities or the work of service providers can be used in lieu of occupational licensing to ensure that they meet minimum standards of quality and safety without the high costs of licensing.
Mandatory bonding or insurance
In cases where the services provided pose a serious threat to consumers and 3rd parties, states can mandate that professionals obtain bonding or insurance to compensate for any damages while not limiting entry into the profession.
Requiring services providers to provide the state with their information can aid consumers in bringing a private cause of action and deter bad actors by making lawsuits easier.
A government agency provides credentials to professionals that meet certain education and experience standards. Anyone can practice in the profession, but only those with a certification can use the title, demonstrating their quality to consumers.
The strongest form of occupational regulation, licensing requires that service providers meet numerous standards before they are legally allowed to offer services.
You can help reform occupational regulations. Please sign the petition below.