Government restrictions forcing people to get licenses for work poses as a massive barrier to labour mobility, and is costing Australian consumers dearly.
A great policy tragedy in this country is that our extreme reticence to undertake any meaningful workplace relations reform means our main debates in this area have transcended into a circus.
Should Dyson Heydon stay or go as the head of the trade unions royal commission? Is the recent draft report by the Productivity Commission into the workplace relations framework a Trojan Horse for WorkChoices or not?
These sorts of arguments make for great media coverage, and animate key players in the "Industrial Relations Club" such as unionists and employer associations, in ways that nobody else comprehends, but all they do is avert our attention from real problems.
Our unemployment rate is becoming uncomfortably high, especially for young people and others on the fringes of the labour market, as economic growth slows and regulations inflating labour costs, such as minimum wages and penalty rates, consign some people who want to work on the scrapheap.
Other key defects within our policy arrangements continue to lurk beneath the surface of discourse, not receiving the attention they fully deserve.
One of the more pressing matters needing scrutiny are the government licensing and permit restrictions concerning who can work in what occupations, invidiously destroying the ability for people to freely pursue their own livelihoods as best they see fit.
These days governments require individuals to obtain licences, either through a government licensing authority or professional association, for a mind-boggling array of occupations.
These include, but are certainly not limited to, the likes of air-conditioning mechanics, bricklayers, doctors, driving instructors, electricians, forklift operators, legal practitioners, nurses, plumbers, property conveyancers and valuers, and weed controllers.
Investigations for a national occupational licensing system by COAG in 2008 found more than 800 licences nationally across a limited group of manual trades, and subsequent investigations in Victoria alone found almost 400 licences, permits, approvals, certification and registration schemes.
There are basically three key problems with existing regimes of occupational licensing as imposed by governments.
First of all, it effectively acts as a labour market barriers due to the usually hefty training requirements and fee obligations, disproportionately affecting low income earners, young people and immigrants who might find it more difficult to find the requisite cash and time to get licensed.
Making it more difficult for more people to find work than is presently the case, occupational licensing restrains the supply of service providers in the market.
As a consequence of this supply restriction, costs are raised for consumers irrespective of any improvements in service quality.
Finally, it is unclear that occupational licensing in of itself can drive the substantial improvements in quality that is desired.
This is because the incentive for already licensed incumbents to provide even better products is dulled due to the labour market barrier entry effects.
Perversely, inflated prices offered by licensed providers may force some consumers to seek unlicensed providers, or do jobs themselves, in some cases increasing accident risks.
Using the work of American economist Morris Kleiner as a guide, it is possible to roughly estimate the potential gains to reform in this area.
Assuming a low-end labour demand elasticity of -0.2 and referencing international studies showing individuals in licensed occupations earn 10 to 12 per cent more than in unlicensed, the deadweight efficiency costs of licensing in this country could range between $1.4 billion to $14.6 billion.
The final magnitude depends on the share of licensed people in the workforce, so if that share is between 40 to 50 per cent (noting in the US it is a lower 20 per cent) the estimated deadweight losses range from $5.4 billion to $8.1 billion.
To submit that the occupational licensing regime, as it stands, is problematic is not an act of ideological flourish from classical liberals seeking a smaller state, come what may.
Support for reform has in fact come from numerous sources, both here and abroad.
The recent competition policy review chaired by Ian Harper made the point that licensing may "restrict who can provide services in the marketplace. Such restrictions can prevent new and innovative businesses from entering the market and limit the scope of existing businesses to evolve and innovate".
The Productivity Commission has indicated in the past that occupational licensing pertaining to, for instance, consumer protection is "an area where there is ostensibly considerable scope to reduce burdensome regulation".
Even the Council of Economic Advisers under the US Obama administration recently said, "by making it harder to enter a profession, licensing can ... reduce employment opportunities and lower wages for excluded workers, and increase costs for consumers".
In the end the issue is not about whether we want to ensure consumer safety or not, but that occupational licences have stretched too far in the directions of prescription and cost, preventing upward labour mobility, better economic growth, and lower prices for services.
Previous efforts through COAG to usher in a harmonised licensing regime have gone begging, in favour of fresh policy efforts in invest in mutual recognition arrangements across the states.
An emphasis on mutual recognition is certainly no bad thing since this helps maintain policy diversity among the states, which would otherwise be nullified by harmonisation or centralisation, but even more should be done to empower livelihood freedom for those who seek to work.
For a start, governments should reduce the costs of the licences and permits they issue, making licensing less of a revenue-raising grab, and professional bodies ought to be encouraged to consider similar steps where appropriate.
Consistent with those initiatives, consideration could also be given to moving towards more competitive models of quality certification through which job holders voluntarily attain state or profession-issued certifications distinguishing them from their competitors.
This sort of idea is hardly utopian.
After all, many Australians presently test the credentials of various service providers by assessing their guarantees and warranties, relying on trusted brand names, using information brokers, referring to social media and word of mouth testimonials, and so on.
Reforming occupational licensing should be a matter transcending the political divide, since the interests of the left in lifting up the poor converge with the interests of the right in promoting economic freedom.
But does the Australian political system have the capacity to go beyond the flim-flam which passes as reform debate these days, and enact genuine occupational licensing regime change?
Only time will tell on that score.
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