Freakonomics Radio - 621. Is Professional Licensing a Racket?

Episode Date: February 7, 2025

Licensing began with medicine and law; now it extends to 20 percent of the U.S. workforce, including hair stylists and auctioneers. In a new book, the legal scholar Rebecca Allensworth calls licensing boards “a thicket of self-dealing and ineptitude” and says they keep bad workers in their jobs and good ones out — while failing to protect the public. SOURCES:Rebecca Allensworth, professor of law at Vanderbilt University. RESOURCES:"The Licensing Racket: How We Decide Who Is Allowed to Work, and Why It Goes Wrong" by Rebecca Allensworth (2025)."Licensed to Pill," by Rebecca Allensworth (The New York Review of Books, 2020)."Licensing Occupations: Ensuring Quality or Restricting Competition?" by Morris Kleiner (W.E. Upjohn Institute for Employment Research, 2006)."How Much of Barrier to Entry is Occupational Licensing?" by Peter Blair and Bobby Chung (British Journal of Industrial Relations, 2019). EXTRAS:"Is Ozempic as Magical as It Sounds?" by Freakonomics Radio (2024).

Hey there, it's Stephen Dubner with one last reminder to come see Freakonomics Radio live in Los Angeles on February 13th. I will be joined on stage by Ari Emanuel, the CEO of Endeavor, and R.J. Cutler, the documentary filmmaker who made the recent Martha Stewart doc, as well as films on Billie Eilish, Elton John, and coming soon, the Dodgers-Yankees World Series. I think it's gonna be an amazing night, at least on paper it is, you never know what happens with a live show, and that's part of the fun.

So I hope you'll join us. Tickets at Freakonomics.com slash live shows. One word, get them fast, only a few left. February 13th in LA, produced in partnership with LAist and SiriusXM. I'll see you there. What does a hairdresser have in common with a lawyer? How about an interior designer and a doctor?

An auctioneer and a funeral director? These are not jokes. I'm sorry, I wish they were. What these jobs all have in common is that they require a professional license, which is administered by a licensing board that is often made up of other doctors and funeral directors and hairdressers. This may not be something you've ever thought about and I wouldn't blame you. It's one of those things a friend of mine calls a MIGO topic. MIGO standing for my eyes glaze over. But when you think about how our economy works, these labor licensing rules are pretty important.

It is the most important regulatory institution we have in labor. Rebecca Allensworth is a law professor at Vanderbilt University, and she's written a book about professional licensing. We Americans like to think of our economy as open and dynamic. Allensworth shows that in many ways, it's not, and that these licensing boards help too many bad actors stay in their professions and keep too many good ones out. And that these licensing boards help too many bad actors stay in their professions and keep too many good ones out. And that's why she called her book, The Licensing Racket. Professional licensing is too onerous for certain professions.

And it just makes the barriers too high. It keeps people out and the investment in what you're getting for that regulation is not worth it. And then, for the professions that are left, medicine, nursing, law, now we need something like a licensing board, only what we have is terrible. By the way, a working title for the book was Board to Death. B-O-A-R-D, presumably. Yeah. So it had three problems. One, it was dorky wordplay. Two, there was this problem that maybe I was over claiming by talking about death in the

title of a book about licensing. And then the other one, of course, being that it sounded like the book was going to be boring. But the over claiming point, you know, I do think that it's dangerous, literally in the sense that there's a lot of doctors and lawyers out there who are just plain dangerous. And we give them a lot of trust and a lot of power as professionals. Around 20% of the American workforce is subject to professional licensing. The system is sanctioned by state governments across the country, and it has been expanding like crazy.

Today, in an episode of the Freakonomics Radio Book Club, how much licensing is too much? And where has this system gone especially wrong? 80% have a history of major discipline, often for overprescribing, for malpractice, for sex with patients. The racket is real. The solution?

That's the hard part, but we'll get into all that starting now. This is Freakonomics Radio, the podcast that explores the hidden side of everything with your host, Stephen Dubner. At Vanderbilt Law School, Rebecca Allensworth teaches contracts and antitrust law. Those are pretty standard law school topics. But when she was starting out, she got obsessed with a topic that very few legal scholars, really few scholars from any discipline, have studied closely, professional licensing boards. Let's start by defining some terms. A licensing board is a regulatory body that's ostensibly part of the state that decides who can enter a profession,

what qualifications they're supposed to have, and then also whether somebody has done something that deserves a revocation of their license or a restriction on their license. It's created by a state statute, but these boards are mostly made up of members of the profession. So, people who are working full-time as doctors, respiratory therapists, hairdressers take a couple days off a year to serve on this board and moonlight as their own regulators. Okay, so that's what a licensing board is. What is it not? Well, it's not really a governmental agency. I don't think that it's made up of people who have the public good in mind. They may think they do, but it really is more like a professional association,

a group of like-minded professionals who are looking out for the interests of the profession. Early on in her research, Allensworth did what you would expect a legal scholar to do. She read everything she could find about professional licensing. She sifted through legal databases to try to understand first the broad strokes of the system and then the nuances. She checked out the economics literature on licensing and she worked all of this into a critique that she was starting to build. Before long her work was being cited by the Supreme Court. She was invited to speak in Congress and in the Obama White House. At

this point, her critique was legalistic and theoretical. She'd never actually attended a meeting of a licensing board. But when she did that, the obsession deepened. I went to the first licensing board and I was so shocked. I have a friend who's a journalist and I was like, someone should write an investigative journalism piece about this. I kind of meant her. And then as I was saying it out loud, I was like, yeah, someone, maybe like me. Alice worth wound up embedding herself for four years in the licensing system of Tennessee, where she lives. She attended many board meetings.

She interviewed more than 180 people covering 28 professions. She started writing some journalism on the subject and now she has published her book, The Licensing Racket, How We Decide Who Is Allowed to Work and Why It Goes Wrong. The minute you start reading, you can see why she wanted to call the book Board to Death. It's so time consuming sitting there.

You don't know what you're gonna find. You have to sift through all of it. You have to make these relationships. You have to spend enough hours in that room that the people on the board know who you are. They know you're going to put in the time to understand what they do. And then you have to say yes to everything. You have to talk to everyone. came to understand how the licensing system works. As she describes it, the path to licensing usually starts small. Members of a profession, often backed by a professional association, will approach a state legislature with a proposal for licensure. These proposals, known as practice acts, set the scope and entry requirements and ethics rules for a given profession.

Once a profession secures its initial licensing law, it gains control of the regulatory board that oversees it. Today, there are around 300 licensed professions in the U.S. regulated by around 2,000 licensing boards across the country. How did all this get started? Some of the first licensees were physicians. Licensing started out with medicine in the late 19th century, and it was limited to the learned professions, so-called, until about the 70s. Since then, it's just been a straight line up,

the number of licensed professions and the people covered by professional licenses. This idea of belonging and meaning and prestige plays a big role because people started to look around and say, our work matters. Our work is just as important as this licensed profession. Therefore, we need to make sure that we get a licensing law for ourselves.

I'll give you an example. Right about the time that people were starting to confront the idea of alcoholism in the 70s and 80s, there became a shortage of therapists that could help you overcome your addiction. And so AA became a big thing. Then these AA group leaders wanted to have a little bit more training and professionalism. They wanted to become therapists themselves. And so there was a new profession called alcohol and drug abuse counselors. The idea was that it was going to be a relatively easy license to get and it was going to increase access to care. Over the years, this profession looks around and says, what we do is just as important

as any other therapist. In some ways, it's even more important. Overdose risk is really high. This is life or death. We need the same level of licensure. And it just got ratcheted up to now, to where it takes more hours of practice to be an alcohol and drug abuse counselor, like internship type hours,

than it does to become a physician. Okay, and all the licensed professions you write about have boards, and earlier you said that the board situation is terrible. Why is it terrible? Because of self-regulation, because it's dominated by members of the profession that may want to look out for the public, but are much more seasoned in looking

out for the profession. So the policing and disciplinary functions are just not performed well? Yes, but also the red tape. These boards are responsible not only for disciplining and policing their professions, but also deciding how high are those barriers to entry, who's going to get over it, whose criminal record is too bad, and they take it too far. And then in the disciplinary side, they abandon public protection. Here's a sentence from the book Jacket that I particularly love. When Rebecca Allensworth began attending board meetings, she discovered a thicket of self-dealing and ineptitude.

The self-dealing we can get to later. Let me hear a favorite example of ineptitude. The failure of medical boards to be able to tell when somebody is lying to them may be one of the most inept things I had to watch. So it was really interesting reading about all the reasons for that and all the ways in which a licensing board, even if well-intentioned, is underpowered. That would seem to be most prominent in medical boards, right? It's also a problem in law. The argument is you have to know the profession, you have to know everything about it to regulate it, and that's the expertise they're looking for.

But then they miss what I would say is even more important expertise, which is the regulatory expertise. You write that licensing boards, quote, combine the most dangerous features of a professional association. And I have to say, I'd never really thought about professional associations as dangerous before. And the government agency, boards have all the interests and incentives of a private club

and the police power of the state to back them up. When I first read that, I was sure that you were overstating your case. By the time I finished your book, I was pretty certain that you weren't. But if I read that out of context, I might take you for some kind of deep state conspiracist. Maybe you are, but can you give me a sense of why you've got such a harsh indictment in that sentence? First of all, I actually love the deep state and that's what I want to bring to licensing. I want the bureaucrats doing this. The problem with the way licensing is done is that full-time employees of the state are

given no power. A lot of the forehead slapping that I saw when I watched these boards regulate was done by lawyers and staff of the board who knew better than the members of the board. And as far as it being dangerous, what I mean there is like nobody's watching, nobody's sitting in on these board meetings, nobody really knows what's going on, and everyone assumes, hey, my doctor has a license, my, you know, real estate agent has a license, there must be something going on there. There's more than that. They may have a license, but there's a lot that can be buried within a valid license that is still not very good for consumers.

Exactly. The very first board meeting I went to was about a doctor who had traded drugs for sex with 11 of his patients. And most of that hearing, which was the hearing in which he got his license back, was about how they could impose this chaperone requirement, but not alert the patients, not tip them off to the idea that there was anything wrong. So there's a lot of cover-up power that a license can give, which makes it really dangerous. And in that case, who were the members of the board? Did they have any relationship with the person whose license

was being considered? Well, no. And that's part of why I resist the word corruption when I talk about this problem. None of the members of the board knew him personally, had any connection to him, had any stake really in him getting his license back. On the other hand, most of them were physicians and most of them saw this person as having started out somewhat like them. Sure, he definitely made some very different choices. He lost his way. He had three different kinds of addiction and that is something that especially physicians are likely to see as having a lot of explanatory power, as capable of being rehabilitated. And, you know, it's all about second chances.

You cite many examples of professionals who face discipline from their licensing board, but then they encounter, as you put it, a system full of second, third, and even fifth chances. And you write that a lot of these regulatory failures come from the most legitimate professions, you call them, like medicine. Talk about the Michael LaPaglia story. His was a story of many, many chances. LaPaglia was using his license to deal drugs and to make money. He got in the crosshairs of the licensing board over that first incident.

They came to his house and they found a whole bunch of drugs that he wasn't supposed to have, some for fun, some maybe he's selling. So they put him on probation. But then while he was on probation, because he had lost his DEA number, which allows him to prescribe these more high dose opioids, he starts trading in suboxone, which suboxone, even though it's used to treat addiction, it can also be abused and also has a large street value. So he does this, he gets caught for it while he's already on probation with the board.

And then he gets another chance. He gets his license back. The restrictions that they put him on after that hearing were basically the same as what they had on the first one. What does he do after that? Well, now his prescribing is even more limited, in part because he's facing a federal indictment for this same conduct. So he goes door to door doing COVID tests. This is high COVID, right?

So he finds people who want a second opinion. They want a doctor's note that says, I don't have COVID even after a positive test. He does that for $50 a piece. This is just somebody who has used their license not to treat patients, not in the best interest of patients, but really for their own gain. His license was ultimately revoked, yes? That's right.

So after all this, and after he was sentenced in his federal case to 18 months in prison, they did revoke his license in an order that gives him another path back to licensure. Would the revocation have happened if not for the federal criminal charge? I am sure that it would not have. And even with the federal criminal charge, it wouldn't have happened if his story hadn't become so public. And how did the story become so public? I wrote about it in the New York Review of Books, and it also was featured on an episode of This American Life.

I think there was a lot of pressure on the board to pull his license at that time. In a case like that, how much evidence does a board have or seek out? They're essentially acting as a court, but in an actual court, the judge and the prosecutors have a lot more opportunity, it seems, to gather evidence than these licensing boards do, or maybe not more opportunity, but maybe more incentive, I hate to say. That's the big word there, incentive. I don't think there's much legally constraining the evidence that a board could gather and consider.

The real constraint is resources and incentives. Resources, meaning this is typically a volunteer board where they don't have all these investigators going out to look through all these files and talk to witnesses and so on, yes? Well, they do have investigators, and these would be in most cases full-time employees of the state, but their salaries are paid through the board and that's all through licensing fees. So there's this conflict of interest where the doctors on the board want to keep fees low for the rest of the doctors.

Their revealed preferences are that they're happy with the minimalist regulation. They don't feel like there's a real problem here. It becomes very low information trials, and in some cases, not very adversarial. What happens when misconduct is bad enough that the criminal justice system gets involved? What do the licensing boards do then? Do they feel chastised?

Are they themselves ever subject to penalty? They're not subject to penalty. What I found is that the presence of some sort of criminal proceeding almost froze the board in its tracks. I was watching the medical board and the other prescribing boards in Tennessee because doctors aren't the only ones that can prescribe. Who else can prescribe in Tennessee? Nurse practitioners, physician assistants, some dentists.

So in this one day, there was this big splashy arrest. I think they arrested 30 Tennessee professionals for dealing opioids. This is the federal government. And most of them didn't have board discipline. I had been hearing all along that the real problem with discipline is that they just don't have the information. They don't know who's screwing up and they don't have resources to figure it out. Well here we have a sudden very public set of

information like these 30 providers might be ones that you're gonna want to like at the very least temporarily suspend their licenses, which you can do without much process. And just meeting after meeting, nothing's happening. Nothing's happening. Meaning they were not called up to the board? They were not called up. It was like it never happened. It was just silence. So you're saying if I'm a doctor and I'm selling opioids out of my car trunk and I get charged and whether convicted or not, you're saying that then my medical licensing board, which

you would suspect would call me in for discipline or hearing or something, they just don't even call them. They do eventually, but it didn't happen for a long time. I asked about this and it was like, well, we can't really proceed against their license because there's this fifth amendment problem. If they say anything in their licensing proceeding that's self-incriminatory, that'll go in their criminal thing. So that's one problem. Now, that doesn't answer the question of why you don't summarily suspend it on an emergency basis.

You can do that without their testimony. And then they're saying, well, also it's just an accusation, and we're about to have a whole lot more information. Like there'll be either a trial or a plea, and then we can act. We're talking now a year or two before these cases get resolved. During which time they're still seeing patients? Yes, although the criminal system knows all of this

and doesn't want that to happen. So the criminal judge is in the position of basically restricting their license, which is what the board was supposed to be doing. So now you have a totally inexpert criminal judge or federal judge saying, you can prescribe this, you can't prescribe that, which is goofy. And then in the end, there was a lot more forgiveness even after the conviction than I expected.

The idea there was, well, let's not pile on. Obviously, this doctor's been through a lot. They have a criminal conviction. It's a huge ding on their record. And they also see how devastating a federal criminal conviction can be on your career. They don't want that for themselves. They think this is punishment enough.

And then there's this heartbreaking part of it that's like, and they'll never practice on you and me anyway. What does that mean? Spell that out. The board members, I'm giving them the most credit possible. Without fully realizing, they're saying they're not going to be able to take private insurance. They're not going to be able to work in the highest end hospitals. They're going to be doing things like working in prisons, working for the VA. And that's not really the set of patients

that I'm super worried about protecting. Those patients are lucky to get care. You write about what you call these fallen professionals. Louisiana is one state you looked at to see what share of physicians working in prisons have a history of board discipline. What are the numbers there? 80%. 80%. You have a history of major discipline, often for overprescribing, for malpractice, for sex with patients. The lower down in the market you go, the rate of discipline goes up.

In the legal profession, which is your profession, should I assume, as with medicine, that the lower you are on the income chain, the more likely you are to have a lawyer who has been disciplined and you may not even know about it? We really need more data here. I would love if my book could inspire more kind of empirical work here. But what I do know is that as you receive discipline from your bar association, your likelihood of working at a firm goes down and your likelihood of working for yourself and in particular in working in immigration, injury law, and indigent defense goes up as

you receive discipline from your bar. Those are three categories of clients that are particularly vulnerable. You explain in the book how complaints against professional licensees can come from a variety of sources. They might come from law enforcement, they might come from the licensing board's own investigators. But one thing that surprised me is that boards rarely hear complaints brought by consumers or customers. Why is that? Why do licensing boards rarely hear directly from the patients of doctors, the clients of lawyers? I don't know, maybe someone whose haircut went terribly wrong.

The whole point of a license and a licensing board is the idea that consumers don't really know what they're getting. Let's take restaurant food. Maybe it's contaminated and not handled properly, and you might get sick. And so we have some regulation for that. But as far as like what's tasty, what's hot, what arrives on time,

consumers know what they're getting. Licensing exists because we don't know what we're getting from our professionals. We don't know what the right legal advice is. We don't know if we have cancer, that's why we go to the doctor. But then when it comes to complaints, we rely on customers complaining about their professionals.

And then there's this other problem, which is that sometimes the bad conduct is stuff that the customers want. Like selling opioids. Selling opioids or getting your lawyer to help you commit a crime. So it's a very bad way of figuring out where is the misconduct. And then the licensing boards figure, well, consumers don't know what's good practice, what's good medicine,

what's good law. I think the place where you see this the most is in allegations about sex abuse. All professionals are very concerned somebody could make up a story. And the boards do act as kind of a gatekeeper for complaints like that. None of this should stop a regulator from actually investigating and seeing whether it's true or if you get two or three

very similar complaints, you might think that that's a little bit easier to believe. Can anyone look up licensing board disciplinary action or investigative action on their lawyer, doctor, etc. etc. In Tennessee you can look them up and you can see if they've had discipline. You can't do it nationally so somebody could have discipline in another state and you don't know it. There's something called the National Practitioner Data Bank that keeps information about board actions and malpractice that can't be accessed by the public.

So it's pretty opaque and it's especially opaque for lawyers. Lawyers really don't want clients finding out about their business. And how do you feel about that as a lawyer yourself? As a non-practicing lawyer, I disapprove. Maybe if I asked my husband, he would say, no, no. Is he a practicing lawyer? He is, he is. He has shared with me the professional perspective sometimes of like,

well, you know, a lot of people complain about a lot of BS and, you know, I don't know if I want people knowing about every complaint against me. That's an understandable perspective. I just don't know that we want to have that perspective, have the final say in regulation. Remember, Rebecca Allensworth believes that the licensing racket, as she calls it, has two main flaws. It protects bad actors, which is what we've been hearing about so far, but also that it keeps too many good people out of the occupations they would like to join. So what does this do? It kind of gives a leg up to people who already have a leg up in life. That's coming up after the break.

I'm Stephen Dubner. This is Freakonomics Radio. We'll be right back. The legal scholar, Rebecca Allensworth, spent years investigating the power, reach, and shortcomings of professional licensing boards. Here's how she puts it in her book, The Licensing Racket. When it came to barriers to entry and restrictions on practice, boards went too far. When it came to disciplining dangerous providers, they didn't go nearly far enough. Before the break, Allensworth told us about the disciplining problem, but she argues that

the lockout effect of professional licensing is also damaging. We license way too many professions. So we need to just get rid of licensing for many professions. When you look across the labor force in the US, you say that roughly one in five workers in America do a job that requires a license. What do you think is the appropriate share of workers? Should it be a third of that? Should it be a tenth of that?

I would say a third to a half. The beauty professions are quite big. A lot of the housing and trade ones, plumbing and electricians, I think are bigger. The medical and legal professions, how big are they as a part of the whole workforce? Really big. About two thirds of the 20% are in the healthcare professions. Doctors are totally dwarfed by nurses. And I think that there's a significant number of professionals that have to have some sort

of license as a nurse that maybe don't need to be licensed. So you've got RNs, I think they should be licensed, nurse practitioners, they should be licensed. But licensed practical nurses, there's a lot of professions within professions that we lump in there. They'd have to change their name though, wouldn't they? They really would, yeah.

Unlicensed practical nurse. Everybody wants to see that nurse. My goal here is not to write a book that says this is what should be licensed, this is what shouldn't be, but I did want to provide some guideposts for how you would make that determination. You write that professional licensing is, quote, an especially onerous form of regulation, erecting high financial and educational barriers, and that it therefore has a big effect on, quote, equality, public health, the economy, and the American dream. So that's a lot.

Oh, I can defend it all. Let's start with the American dream. Homeownership used to be the American dream. That used to be the way that you knew you'd made it. I think there's a way in which a professional license has taken over that role. That's how you know you really are accepted in the society if you have the state imprimatur on the work that you do. You see this a lot in the discourse of people who are trying to get new licenses.

They say, our work is important. Our work is dangerous. Our work is valuable. And we don't have a license. We should have that kind of status. Okay. So that's how licensing hurts the American dream. How about the other categories? The economy, public health, equality? It impacts the economy because it is the most important regulatory institution we have in labor.

There's more people who are subject to professional licensing than are our unions and are affected by the minimum wage combined. 20% of the American workforce, tens of millions of workers. Also, we know that it raises prices and creates scarcity. We spend more on healthcare than any other country. I don't want to oversimplify healthcare economics, but there is an element of a supply and demand problem where prices go up because supply is so low. Another way of saying the same thing is that it is very expensive to go to medical school.

It's such a huge investment to get into the profession and that creates a small number of practitioners and then prices go up. It's a big problem for equality because you have to have typically a clean criminal record to get over this barrier. You have to have money to pay for a school. You also have to be able to take a year or three out of the labor force to go to school. So what does this do? It kind of gives a leg up to people who already have a leg up in life. So it exacerbates inequality essentially. Exactly. I think the place you see this most is with people with criminal histories. Because the one thing you need when you get out of prison is a job. That is probably the single most important

determinant for how the rest of your life will go. In a system where a huge chunk of jobs are licensed, you have to overcome the idea that you've got to ding on your criminal record. There's no real nexus between the idea that you committed a crime and this licensed profession that you're doing. I saw a dental assistant get a really hard time about her criminal record in front of the dental board. It's very unclear to me what her driver's license charges had to do with being a dental

assistant. But advocates of licensing argue that licensing can help raise wages for lower education or low-income workers, especially minorities, by providing a better path to economic sustainability because they are in a licensed profession. How much sympathy do you have for that argument? Not a lot. The reason why those wages are higher and the reason why there's this path is because of the people who are left out of it. That's the source of the benefit.

It's not enough to say that this particular minority group or this particular disadvantaged set of people get a particular benefit out of licensing if the way that they're getting that benefit is by excluding other members from that same group. Among all licensed professions in the US, which ones do you think clearly don't need licensing? Well, I think the hair professions are not ripe for professional licensing. I'm laughing only because there aren't that many people in the world making the arguments that you're making today about the licensing racket.

But it seems that every person that does make the argument uses hair cutting and hairstyling as an example. Why is that? The reason why hair is such an attractive example is because it's just so extreme. It takes more classroom hours than to go to law school. No, come on. Yeah, 1500 hours. I've done the math.

My students, I teach at a law school. My students have to be in class for 1,200 hours. What happens during 1,500 hours of hair styling training? What happens during that time? Is it just an apprenticeship, essentially? There's a fair amount of book studying, which is actually a big problem because a lot of people who want to cut hair aren't capable of or interested

in the book-based exam studying that comes along with the professional system. A lot of people don't go to hair school because they think that they won't succeed even though they could be perfectly capable hair cutters. In many of the occupations that Allensworth looked into, there were English-only written tests that worked to exclude non-native speakers. And while tests and training are designed to improve the quality of services offered by a profession, the evidence is mixed, to put it generously. During her research, Allensworth found that licensing boards put far more energy

into enforcing their own requirements than protecting the public. Consider the board in Tennessee that licenses alarm systems contractors. Allensworth found them, quote, 10 times more likely to take action in a case alleging unlicensed practice than one complaining about service quality or safety. And then there are the licensing turf wars. This is a major source of power for the boards. In many states, including in Tennessee, nurse practitioners, for example, must be supervised by physicians.

And the terms of that supervision are set by the boards and they decide how many nurses you can supervise, what kind of intensity the supervision is. This is a huge problem for access to care. Nurse practitioners can do a ton of medical care that we really desperately need in this country, especially primary care. And if we were to allow them to practice to the full extent of their training, we would have a lot more provision of that care.

Doctors take the attitude that if you wanna practice medicine, go to medical school. What's a little funny about this is they will say, it's really important that the public get the highest possible quality care. We don't wanna cut any corners. We don't wanna send anyone to a nurse practitioner if a doctor could have done a better job.

They'll say that in that instance, and then turn around in the disciplinary side and say, well, any doctor is better than no doctor. And so I'm going to let this guy keep his license so he can go on to work at a prison. Let this guy keep his license in part because there just aren't enough doctors to go around. Exactly. But isn't the licensing board or the AMA responsible for the supply of doctors? Exactly. So on the one side, it's like we need to have the highest possible standards, which of course create shortages. Turf wars are a big part of that. And the failure to use nurse practitioners and physician assistants to their maximum level is a big part of that.

Then they turn around with the scarcity and say, well, now we have scarcity, so we have to let this doctor that's at best questionable stay in the profession. Yeah. It's a little bit like being the firefighters who set the fire in order to put the fire out to prove your value. Yes. Yes, it is. Talk about how licensing affected the medical response to COVID. Early in COVID, we had this severe shortage, especially of nurses, but of all medical professionals. That made for a higher death rate. It brought the whole system to its knees and burnt out a lot of medical professionals who then left the profession. Licensing is a big part of the story because licensing holds down the number of practitioners. Part of the solution was, okay, well, we got here because we have

state by state licensure. Let's just get rid of that for now. If you have a license anywhere, you can travel. This seemed to work at first. All these people signed up for it. They tried to come to New York, but the regulatory apparatus for these boards is so small and so underfunded that they just couldn't actually process all these people. The more we talk, the more it seems that states are ceding a lot of regulatory power to these boards. It reminds me of an argument made by a political scientist I know about how Congress has ceded a lot of its legislative authority to the executive branch because

it's so time consuming to make legislation. And so they pass on things and let the president sign an executive order, then it might get turned over after the next election, but at least they got something done. It feels here like states and state regulators would like these professions to be capably regulated, but because it's so difficult, time consuming, confusing, et cetera, they delegate that responsibility to these boards. Is that unfair?

Is that about right? That's exactly right. And it's even worse than the delegation between legislature and the executive, because all the regulation by these boards is paid for by the licensing fee. So it's actually kind of free to the legislature. For example, art therapists are now licensed in Tennessee. The fiscal report on it is going to come back zero, which they love. My point is you kind of get what you pay for, but it is a huge capitulation to the profession. You might call it a dereliction of duty. As I said earlier, Allensworth is one of a relatively small number of academics who have

looked into occupational and professional licensing. One of the most prominent is Morris Kleiner, an economist at the University of Minnesota whose work has inspired and influenced Allensworth. Kleiner found that professional licensing adds a 10% premium to the price of these services, representing an estimated $250 billion in annual cost to consumers. The economists Peter Blair and Bobby Chung found that licensing reduces the number of providers in a given profession by 17 to 27 percent. And none of this is taking into account the immeasurable but massive costs of mishandled allegations of sexual abuse, improper prescribing, and so on. After the break, how about some solutions?

I'm Stephen Dubner. This is Freakonomics Radio. We'll be right back. Rebecca Allensworth's main argument is that occupational licensing inflicts all sorts of costs on the American workforce and on consumers. She thinks that many occupations should not require licensing at all, but how about medicine and law and the other professions where she thinks licensing does make sense?

I asked her in those cases, how should it be done differently? It should be bureaucratic. It should actually be governmental. It should be overseen better by the legislature and it should be made up of deciders that are not on Monday working at a licensing board and then on Tuesday through Friday working in that profession where they stand to gain the most from this bad regulation. You do talk about federal licensing or eliminating boards entirely in favor of state agencies. What do you see as the trade-offs involved? I want to see more governmental involvement in these boards. There's two ways you could do this.

One would be to have the board be advisory to a decision maker. This is basically how we do burial services, which is people who can cremate bodies and who operate graveyards. There's a bureaucrat who's in charge of that program and you see much more reasonable regulation there than you do for funeral directors, which has a board dominated by funeral directors. So you could vest the decision making power

in a full time regulator. Or you could make the boards more or less the way they are now, but change their composition so that only a minority of members of the board are from that profession. If we did that, I'd like to see the other seats go not to randos, which is the way we do it now, but rather people who have a stake in that profession from some other perspective, you know, patient advocates or even, I dare say, a professor who has some academic understanding of the problem. But what about the upsides of licensing? I know that you say that the priorities of licensing boards should be protecting the

consumer and you argue that they just don't do a very good job of that. On the other hand, if I hire, let's say, an electrician, don't I take a lot of comfort in knowing that they've spent a fair amount of time on education and training and compliance? That's the argument for licensure. And there's a lot of work where we can't reduce it to a code, right? We can't say that this is how you diagnose cancer. You can't put it in a rule that you can easily apply.

And that's where we need a license. We say you have to go to school, you have to pass this test, you have to stay up to date. And we just hope that if you do all those things that you'll develop the professional judgment where you can make those difficult decisions. Electrician, I don't know, it's kind of on the line. We do have building codes, we do have rules about what goes where, and I'm open to the idea that those are sufficient, that there's things you can and can't do with electricity, and maybe you don't have to have elaborate education

and judgment. Or maybe you do, and I'm wrong about electricians, but that's the point. You know, going to child care. So at my kid's daycare, the people working there were not licensed, but of course they had background checks, and they were subject to rules, like you put babies to sleep on their back.

When you feed them, they have to be sitting in a high chair to avoid asphyxiation. Those are reasonable, good rules that we should make people follow when they're taking care of children that protect the public without that real expense of the license. You mentioned so many cases of sexual abuse in the medical sphere as a reason for discipline. It makes me wonder if a lot of these occupations, you are essentially putting yourself in a position of trust or vulnerability with another person. I wonder if a lot of the licensing is meant to just prevent or to diminish the possibility of that kind of sexual abuse or bad power dynamics, or am I being too generous toward these licensing

bodies? Too generous. These arguments are made. On the other hand, you know, I have something in my basement, I believe, some critter. So I called a trapper, which apparently is a thing. He came to my house and we were alone and you know, he's not licensed. He was lovely. That's just one way of saying that there's all kinds of strangers that I let into my house to help me take care of stuff all the time. And some subset of them are licensed. Now that I know what boards are doing,

I know that they're not taking care to make sure that that person isn't scummy or scary. And then the big example is babysitters. So you could not imagine a more vulnerable job as somebody who's gonna like watch your child. It is a job for which we want to hire somebody we trust and we do. But it is not necessary for the government to say you can or cannot be alone with a child. It's something that we handle through other means.

You're in favor of babysitters not being licensed. Of course. It would never work. It would raise prices so high for something that already is a crippling expense. It would also exclude a big part of the labor force because it'd be hard to get a license if you're 13. Yeah, I don't know what the cutoff would be for the babysitter license. When you mention babysitters, it makes me wonder, what about having children, becoming

a parent? Does it strike you as odd that cutting hair requires a license and all that training, but that becoming a parent, you just need a set of reproductive organs that are working. There's no barriers. There's no exhibit of competence or financial soundness or anything. I've only thought about this in my personal life, not in my professional life. I do often feel unqualified for the job that I have of raising my two kids. Would a licensing procedure have helped?

Would a mandatory training session have helped? If every one of us is really honest, we know that we would not get a parenting license and we would have it taken away if we did. Screw-ups are just too frequent. Maybe the point here is like, there's other ways to protect people from bad things happening than licenses, but you can always make some kind of theoretical argument that this license is going to help one patient or this license is going to help prevent this one problem that happened once. And when there isn't like a good organized argument on the other side,

which often there isn't in these state debates, they just kind of figure it's a win-win, you know? The public gets something, the profession gets something, and it costs the state nothing. Where do you see this kind of professional licensing and regulation done well? Not in any single state. The most positive example is the way that medicine is regulated in the UK, where they have more of a separation between the regulatory side and the disciplinary side. Both bodies are not dominated by physicians. There's physician input, but it's not dominated.

Other voices at the table. They have something there called the Medical Professional Tribunal Service. How does that work? Typically when you get a panel to hear your case, you have three people, usually one of them is a physician. One's a lawyer and then the third, the statute doesn't say what they have to be doing. But all of them are paid a salary to actually do this regulating work and have training, guidelines and expertise that American boards don't have. There's no plea bargaining. So everything is all out in the open and there's more oversight within the legislative body.

That sounds promising. It also sounds like it could take forever. I did with a colleague look at about five years worth of cases from the UK and Tennessee. And I don't remember thinking that the UK ones go any slower. The American system is quite slow. And what about outcomes? Is that system more likely to produce effective monitoring of professionals, including discipline? Yeah, so we did a head-to-head comparison between

doctors in America and in the UK engaged in inappropriate sex with patients and overprescribing, and we found a really big difference in how many were struck from the registry, which is the term in the UK for losing your license, than in Tennessee. So it would seem that yes, the outcomes are different. However, remember they have socialized medicine, they have the NHS, it's really apples and oranges. So we can't say confidently that the process is what leads to this different outcome, but we see a better process and we see more reasonable outcomes. You can sort of connect those dots. Telemedicine spiked during COVID,

but there was also a state-based medical licensing issue there, which is you could only treat a patient, even electronically, in your own state. This is something we talked about recently on the show with Zika Manuel. He said we just need to get to the next level, to national licensure, but states are jealous of their turf. Do you see that as a viable solution in a case like that?

National licensure. So in theory, yes, of course. There's not materially different needs of a patient in one state versus another state. It would make moving between states and not just electronically, but physically, much easier. It would also create a single thing for us to study so that we could understand how this system works rather than doing it state by state. But in practice, there's two problems with it.

One, if we did that, it would be a race to the bottom. We would get the requirements of the most onerous state. Because as you said, no state is going to give up what they've got. There's a physician's compact, which is like an agreement among states to recognize each other's licenses. But the terms of that compact are essentially the most onerous state. So I worry if we did a national license that it would be particularly onerous. The other reason why it won't happen is because of the AMA or the ABA or whatever profession

we're talking about is going to fight tooth and nail to maintain the state by state system. Because why? What's in it for them? It's easier for them to capture these smaller boards. And I think also the full ability to practice between states increases competition. If you can just phone a doctor in Ohio from Tennessee, that's going to create a lot more competition for physicians in Tennessee. What's wrong with competition? Economists love competition. Some governments proclaim to

love competition. It creates better quality and cost for most consumers. So in what way am I totally wrong when I say that? Well, I'm an antitrust professor, so I also love competition. But competition doesn't solve all problems. That's where I think the licensing board really has a role to play and regulation has a role to play in many professions. It's not all about just what the customer wants when it comes to the professions. And it's also not clear what they're getting. There's an information asymmetry for which a license can really help. The other point is competition is not going to solve problems like opioid overprescribing. That's a case of giving

the patient what they want. How do you think your argument intersects with the new Trump administration and especially you, you know, Trump himself, but mostly Elon Musk, vowed to shrink the federal government. Is it possible that a so-called department of government efficiency will start pushing things in the direction that you would like on the state level? Well, you spent six years writing a book about this example of governmental inefficiency. You get sort of excited. It's like, finally, my time is

coming. And it turns out that what's underneath that is just more self-dealing. It's almost the opposite message that I'm trying to give, which is that it's the bureaucrats who know what they're doing. Yes, we need to cut through the red tape, but it's the self-dealers and the members of the profession that have created that red tape. So're saying that the musk Trump version of efficiency just means unregulated versus capable regulation Maybe or maybe it means unregulated when it suits musk and regulated when it suits musk That's what I saw at the boards when you give somebody power over their own regulation They're gonna be hands-off when it suits them and they're gonna be hands-on when it suits them over their own regulation, they're going to be hands off when it suits them, and they're going to be hands on when it suits them. So I'm all for cutting red

tape. The question is, how do we cut it? And I think we cannot trust people who have their own self-interest. So my profession, journalism, does not require a license? Oh yes, this is one of my favorite examples. The legal case obviously is slam dunk, right? You could not have a license for a journalist because of the First Amendment. Maybe there are some people who are calling themselves journalists out there that we don't want doing it but- Oh, there are. I can vouch for that.

At the same time, there's systems for figuring out who are the most qualified journalists. There's journalism school. Obviously who you're employed by is a big signal of how qualified you are. I'm not here to defend the marketplace of ideas that we have right now in a full-throated way, but it's an example of a profession that is prestigious, important, and has its own kind of regulatory or at least sorting mechanism without licensing. I do not think we want the government coming in and saying, this is journalism and this is not.

By the way, I myself have benefited from this. I'm not a journalist, but I acted like a journalist. Okay, so for all the reporting you did, all the board meetings you sat in on, the conversations you had, and the legal scholarship you added on top of all that, and then writing the book itself, do you think your work will have any significant effect? I do. There's state legislation that can maybe not solve this problem, but that can help. I think that there's some interest in that. There's a lot of headwinds from the professions, obviously.

But I'm hopeful that maybe something can shake loose. At the very least, I think people should know what they're up against when they're trying to get a license or when they feel locked out of a profession or just when they're a consumer or professional services, assuming that the license is on the wall, then this is fine. I think that it'll have an impact, hopefully, on everyday people who maybe think about their licensed professionals a little bit differently. I'd like to thank Rebecca Allensworth for helping me think about licensed professionals a little bit differently. This is a subject I've been interested in for a long time, but

I was always looking for the right opportunity, the right person really to explain it. I appreciate how much legwork and brain work Alan's worth put into it. Again, her book is called The Licensing Racket. I'd love to hear your thoughts on this topic. Our email is radio at freakonomics.com. Coming up next time on the show. Rats do something to traumatize you, and I hate rats. The brown rat, also known as Rattus nervegicus, is one of the most reviled animals in the world. Why? Rats are known for their ability to exploit and thrive where humans are densest. It doesn't help that they supposedly killed off half of Europe in the Black Death, so most people respond to rats with disgust, fear, even anger. But not everyone.

They're in some sense our natural city partner. I certainly have a reverence for them. They're sweet and they're smart. They make great pets, honestly. And that thing about the Black Death? That's the one that most people think are the right one. They are wrong. Very clearly, they are wrong. And just wait until you hear the backstory of the film Ratatouille.

Can I just say Ratatouille is an idea, as a story, as an allegory? We have made a three-part series that we're thinking about calling Sympathy for the Rat. That starts next time on the show. Until then, take care of yourself, and if you can, someone else, too. Freakonomics Radio is produced by Stitcher and Renbud Radio. You can find our entire archive on any podcast app. It's also at Freakonomics.com, where we publish transcripts and show notes. This episode was produced by Teo Jacobs. The Freakonomics Radio Network staff

also includes Alina Coleman, Augusta Chapman, Dalvin Abouwagie, Eleanor Osborne, Ellen Frankman, Elsa Hernandez, Gabriel Roth, Greg Rippon, Jasmine Klinger, Jeremy Johnston, John Schnarres, Morgan Levy, Neil Carruth, Sarah Lilly, and Zach Lipinski. Our theme song is Mr. Fortune by the Hitchhikers, and our composer is Luis Guerra. As always, thank you for listening.

Say the name of your book. The Licensing Racket, How We Regulate, sorry, okay, it's a long subtitle, I'm gonna have to do that one again. Okay, The Licensing Racket, all right, one more time. The Licensing Racket, How We Decide Who Is Allowed To Work and How It Goes Wrong. I'm gonna have to do that one again. Okay, the licensing racket. All right, one more time. The licensing racket, how we decide who is allowed to work and how it goes wrong. I've got it as why it goes wrong.

I know, I know. Yep, take four. You would think that like I would come here prepared to say the name of my book. Ha ha ha ha. The Freakonomics Radio Network. The hidden side of everything. Stitcher