Freakonomics Radio - Episode 621: Is Professional Licensing a Racket?

Hosts: Stephen Dubner and Rebecca Allensworth
Release Date: February 7, 2025
Duration: Approximately 60 minutes

Introduction: Unveiling the Licensing System

In this episode, Stephen Dubner engages in an in-depth conversation with Rebecca Allensworth, a law professor at Vanderbilt University and author of The Licensing Racket: How We Decide Who Is Allowed to Work and How It Goes Wrong. They explore the intricate world of professional licensing in the United States, dissecting its origins, current challenges, and broader implications on the economy, public health, and societal equality.

Defining Professional Licensing

Stephen Dubner [02:47]: "It is the most important regulatory institution we have in labor."

Rebecca Allensworth elucidates that professional licensing boards are regulatory bodies established by state statutes to determine who can enter a profession, set qualifications, and enforce ethical standards. However, she points out a critical flaw: these boards are predominantly composed of current professionals within the field, leading to self-regulation that often prioritizes the interests of the profession over the public good.

Rebecca Allensworth [05:46]: "A licensing board is a regulatory body that's ostensibly part of the state that decides who can enter a profession, 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."

The Problems with Licensing Boards

Allensworth highlights several key issues inherent in the current licensing system:

1. Self-Regulation and Conflict of Interest:

   • Boards are typically staffed by practitioners from the profession they regulate, creating a conflict of interest.
   • This self-regulation often leads to inadequate disciplinary actions against misconduct.

2. Excessive Barriers to Entry:

   • Licensing introduces high financial and educational barriers, restricting access to professions.
   • This exclusivity exacerbates economic inequality by favoring individuals who already possess socio-economic advantages.

3. Ineffectiveness in Policing Misconduct:

   • Boards frequently fail to adequately discipline professionals who engage in unethical or illegal behavior.
   • Example scenarios include doctors overprescribing medications or lawyers engaging in misconduct without facing substantial repercussions.

Rebecca Allensworth [10:50]: "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."

Case Studies Illustrating Licensing Failures

1. Michael LaPaglia – A Medical Board Failure

LaPaglia's case serves as a poignant example of the systemic issues within medical licensing boards. Initially disciplined for illegal activities, his license was repeatedly reinstated despite ongoing misconduct. It wasn't until federal criminal charges and public scrutiny intervened that his license was finally revoked.

Rebecca Allensworth [15:17]: "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."

Stephen Dubner [17:11]: "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."

Rebecca Allensworth [20:15]: "They were not called up... it was like it never happened. It was just silence."

2. High Rates of Discipline in Louisiana

In Louisiana, a staggering 80% of physicians working in prisons had histories of major disciplinary actions, including overprescribing and malpractice, underscoring the pervasive shortcomings in enforcing professional standards.

Rebecca Allensworth [22:29]: "80% have a history of major discipline, often for over prescribing, for malpractice, for sex with patients."

Economic and Social Implications of Licensing

Allensworth discusses the multifaceted impact of professional licensing on various aspects of society:

1. Economy:

   • Licensing acts as a significant barrier to entry, limiting the supply of professionals and driving up service costs.
   • Economists like Morris Kleiner estimate licensing adds a 10% premium to service prices, totaling an estimated $250 billion annually in costs to consumers.

2. Public Health:

   • High barriers in healthcare professions contribute to shortages, leading to increased costs and decreased accessibility.
   • Licensing limitations restrict the expansion of roles like nurse practitioners, which could alleviate healthcare shortages.

3. Equality and the American Dream:

   • Licensing disproportionately affects marginalized groups by requiring extensive resources and clean criminal records, thus perpetuating socio-economic disparities.
   • Individuals with criminal histories face significant obstacles in entering licensed professions, hindering their reintegration into society.

Rebecca Allensworth [31:22]: "When it comes to equality, you have to have typically a clean criminal record to get over this barrier. You have to have money to pay for a school."

Stephen Dubner [32:02]: "It impacts the economy because it is the most important regulatory institution we have in labor."

Comparative Analysis: U.S. vs. U.K. Licensing Systems

Allensworth contrasts the U.S. licensing system with that of the U.K., highlighting the latter's more effective regulatory framework. In the U.K., regulatory bodies like the Medical Professional Tribunal Service operate with greater governmental oversight and include diverse members, leading to more decisive and fair disciplinary actions.

Rebecca Allensworth [50:11]: "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."

Stephen Dubner [51:09]: "They 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."

Potential Solutions and Reforms

Allensworth proposes several reforms to rectify the flaws in the current licensing system:

1. Increase Governmental Oversight:

   • Shift decision-making power from self-regulatory boards to state agencies to ensure impartiality and public interest.

2. Diversify Licensing Board Composition:

   • Include non-professionals, such as patient advocates or independent experts, to balance the influence of current practitioners.

3. Implement National Licensure:

   • Although challenging due to state resistance and professional turf wars, a national licensing system could streamline regulation and reduce barriers.

4. Adopt Procedural Reforms:

   • Emulate the U.K.'s model by establishing separate bodies for regulation and discipline, ensuring more effective enforcement of standards.

Rebecca Allensworth [44:24]: "It should be bureaucratic, it should actually be governmental, it should be overseen better by the legislature."

Rebecca Allensworth [50:11]: "The most positive example is the way that medicine is regulated in the UK."

Discussion on Licensing and Competition

The conversation delves into the tension between licensing and market competition. While licensing can restrict supply and inflate prices, competition is lauded for driving quality and affordability. However, Allensworth notes that competition alone cannot address issues like unethical conduct or information asymmetry between professionals and consumers.

Rebecca Allensworth [54:12]: "Competition doesn't solve all problems. That's where I think the licensing board really has a role to play and regulate."

Final Thoughts and Future Outlook

Allensworth remains optimistic that her work will ignite legislative and public discourse aimed at reforming the licensing system. She emphasizes the need for greater awareness about the costs and limitations imposed by current licensing practices and advocates for a balanced approach that safeguards public interests without stifling economic opportunities.

Rebecca Allensworth [57:20]: "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."

Stephen Dubner [57:58]: "I'd like to thank Rebecca Allensworth for helping me think about licensed professionals a little bit differently."

Conclusion: The Licensing Dilemma

The episode concludes by reinforcing the complexities of professional licensing and its profound effects on both individual livelihoods and broader societal structures. Listeners are encouraged to reflect on the balance between necessary regulation and the pursuit of an open, equitable economy.

Notable Quotes with Timestamps

• Rebecca Allensworth [02:51]: "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."

• Rebecca Allensworth [03:18]: "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."

• Rebecca Allensworth [10:50]: "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."

• Stephen Dubner [12:52]: "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."

• Rebecca Allensworth [22:29]: "80% have a history of major discipline, often for over prescribing, for malpractice, for sex with patients."

• Rebecca Allensworth [31:22]: "When it comes to equality, you have to have typically a clean criminal record to get over this barrier. You have to have money to pay for a school."

• Rebecca Allensworth [50:33]: "There's physician Input, but it's not dominated. There's other voices at the table."

• Rebecca Allensworth [54:12]: "Competition doesn't solve all problems. That's where I think the licensing board really has a role to play and regulate."

Key Takeaways

• Self-Regulation Flaws: Professional licensing boards, predominantly composed of industry insiders, often prioritize protecting the profession over enforcing standards and disciplining misconduct.

• Economic Barriers: High licensing requirements escalate service costs and limit workforce diversity, exacerbating economic and social inequalities.

• Public Health Risks: Ineffective licensing enforcement can lead to malpractice and unethical behavior remaining unchecked, posing significant risks to public health and safety.

• Need for Reform: Transitioning to a system with greater governmental oversight, diversified board composition, and possibly national licensure could address current systemic issues.

• Broader Implications: The licensing system profoundly affects the American Dream, limiting opportunities for socio-economically disadvantaged individuals and hindering economic mobility.

For more insights and detailed discussions, listen to the full episode of Freakonomics Radio on your preferred podcast platform or visit freakonomics.com.