Does occupational licensing ignore the creative destruction on skills?

Occupational licenses can be thought of as the fixed costs of entering a profession, with the intention of paying those costs off over a career. This argument is strong when a life-long career was a serious possibility. However, there is clearly increasing movement between occupations due to faster technological change.  Does this weaken the government-imposed education-licensing-approval problem? Is there an argument against occupational licensing citing the increased creative destruction on skills?

When Joseph Schumpeter introduced the concept of creative destruction he had a particular vision in mind. He told a story. That story was that the economy began in some state of rest, and entrepreneurs came along and disrupted this rest.

Entrepreneurs did this by introducing new combinations, technologies, businesses and so forth. What this did was destruct the incumbent businesses by taking their profits and customers. What was understood–at least to some economists and policy-makers–after this was that we should let the market process play out because the entrepreneur is a central determinant of change, thus engendering societal change, economic growth, prosperity, and so forth.

I want to suggest here that we may also envision creative destruction on skills, not on businesses. It is true–both by anecdote and data–that gone are the days of a life-long career. Individuals are moving between careers at a fast pace. As businesses evolve they require different skills of their employees. And in the same vein as creative destruction on businesses, these changing skills are fantastic for society. We want to encourage labour to be mobile between different occupations. Nevertheless–at least in the US–we’re seeing a huge number of licenses required to work. For example, see the recent work on opticians licensing in the US by Timmons and Mills at Mercatus:

What we have is an institutional system that requires many individuals to undertake specific, costly, and lengthy processes of education before entering a profession. Note that while I focus on occupational licensing here, it is clear this also includes the various degrees, and apprenticeships and so forth that are required to enter a profession. I focus on occupational licensing because it is the government-granted restriction. These can be seen as the fixed cost, or barrier to entry, through which you must pass to enter a profession. These are of course advocated in the ‘public interest’ (namely safety). But there must be a corresponding argument for the ‘public interest’ of innovation and the societal change it engenders.

We often ignore that increasing the barriers to entry to particular occupations creates friction in the movement of labour. This friction in labour is the equivalent of friction on industry and business structure (something that is more widely understood). Moreover, continually increasing occupational licensing requirements ignores the clear fact that individuals have a shorter time to pay off those fixed costs because of their movement between occupations.

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