Should someone need a license to whiten your teeth?
In February, the Supreme Court sided with the Federal Trade Commission in its antitrust lawsuit against the North Carolina Board of Dental Examiners.
The Board, which regulates the practice of the dental industry in North Carolina, was sued by the Commission after sending cease-and-desist letters to unlicensed teeth whitening providers in the state. The Board claimed that it was acting as an extension of the state government and was therefore immune from prosecution on account of the state action doctrine. This says that when a state knowingly approves regulation that will have anticompetitive effects, the federal government must respect the state’s decision.
The Supreme Court, however, countered that the Board could not be considered a government entity acting in the public interest, since it is primarily composed of practicing dentists—who would have their own reasons for wanting teeth whitening professionals to be shut down—and it is not regularly supervised by state. Justice Anthony Kennedy, explaining the 6-3 decision in favor of the FTC, stated: “Federal law does not authorize the States to abandon markets to the unsupervised control of active market participants, whether trade associations or hybrid agencies.”
The Court’s ruling took an important step towards curtailing protectionist rent-seeking—that is, when a company uses the government to gain economic advantage—and promoting economic liberty. The exemption from antitrust law lends regulatory agencies the authority to restrict access to certain professions, a power which should only be justified in order to ensure the health and safety of consumers. Unless beautiful smiles are a public safety concern, teeth whitening licenses don’t satisfy this criteria.
This case underscores the kind of occupational licensing schemes that have become increasingly common in recent years. State licensing requirements have proliferated since the 1950s, when roughly one in every 20 workers needed to obtain a government license. Now that number has soared to nearly one in three.
While licenses are important in some highly technical or specialized professions like law, medicine and accounting, in others they present an unnecessary and excessive burden for job seekers. Today we have state licensing requirements for makeup artists, interior designers, home entertainment installers and florists—among others. In Tennessee, in order to become a shampooer,—someone who only shampoos and rinses customers’ hair in salons—you have to undergo 70 days of training, two exams, and $140 in fees.
These burdensome requirements represent a form of protectionism whereby existing license holders use government influence to choke off competitors and elevate their own wages—just like how North Carolina dentists didn’t want other teeth whitening professionals to be able to compete with them for teeth whitening customers.
Occupational licensing restrictions harm the economy on multiple levels. Licensing reduces flexibility in the labor market and weakens employment growth. Low-income individuals are disproportionately affected, as the additional requirements needed for a license often force them into lower-paying but more accessible jobs.
Customers are also hurt by occupational licensing restrictions. The reduced labor supply inflates prices for consumers and decreases economic output. Reduced competition in the workplace also undermines the long-term improvement in living standards by hampering innovation. A January study by the Brookings Institution found that the restrictions due to occupational licensing could lead to “up to 2.85 million fewer jobs nationwide, with an annual cost to consumers of $203 billion.”
While the costs of occupational licensing are felt across the economy, the benefits accrue almost exclusively to existing license holders. According to the Brookings study, “economic studies have demonstrated far more cases where occupational licensing has reduced employment and increased prices than where it has improved the quality and safety of services.”
State licensing requirements have spiraled out of control and are stifling economic opportunity for working Americans. They benefit a few while at the same time impede growth, limit employment and increase prices for the rest of us.
The Supreme Court took a step in the right direction by weakening the ability to block out competition via licenses and other regulations. Policy makers should follow up on this success by overhauling the existing licensing requirements and putting an end to this economic favoritism.