The debate over licensing is far from new. As many who have gone through a Business/Finance degree in college know, Milton Friedman and many other neoliberal economists highly disagree with modern licensing structures. In their view, they demonstrate inefficiencies in allocating resources (in this case, labor) and limit the actual output of an economy. Despite these pleas from economists and intellectuals, the rate of licensing in the US economy increased by four fold from 1950 to 2017. The consequences of this shift in certification over education can be felt throughout the nation.
The reason for this shift can be attributed to numerous sources. For starters, and as pointed out by authors such as Mariana Mazzucato and Stephany Kelton, lobbying by industry insiders is regularly used to create barriers to competition. While this often makes a source of protection for industry insiders, it also hinders the strength of free markets that neoliberal and monetarist economists argue for. The shift of the modern economy from a manufacturing to a service-based economy creates the environment for these programs to take hold. Many services, such as Real Estate Offices, Dental Practices, and Accountants, require specific licensing (and insurances) to start operating. For those with the knowledge to work/compete within these fields, often the hindering factor is where they’re coming from in life, both geographically and socially.
Here in the state of Maine, this issue is exacerbated not only for the two reasons stated in the previous paragraph but also due to our limited access to educational services and the wide variation in population distribution we see between the northern and southern portions. Because of this, we need to take a moment to see how three different programs have either enhanced or hindered industries in the state. From there, we will attempt to learn why these programs have “failed” and what we can do to foster a healthier system moving forward.
The first program, and arguably the most successful, is the often controversial career of Real Estate. While many feel that Real Estate agents are overpaid for the work they do, professionals such as these indeed invest not only their time but also their un-guaranteed income to foster their careers. To become a Sales Agent, a Maine resident must pay roughly $500 for a two-month course and pass a state-mandated test post-completion. To maintain their license, an agent will regularly spend up to $1,000 in fees per year, regardless of whether they make a sale that year or not.
While these limitations are not cheap, they require no prior education and offer employment in almost any county in the state (the limiting factor being existing competition). This has allowed for a proliferation of realtors within the state. According to the Maine Association of Realtors, there are currently 4,500 Realtors in the state, representing 600 firms. For a state with only a million citizens, that is huge. Representing nearly a billion dollars in volume and growing every year, this created a lucrative opportunity that most can quickly gain access to. The most significant hurdle these individuals must overcome is the geographic limitations that limit their ability to access the required certification programs. However, the increased access to internet services and adoption of online education has allowed for this limitation to be lifted in previously depressed markets such as the northern portions of our beautiful state. While this is an ongoing struggle, it highlights another reason why internet access is a utility that is required in modern life.
This relatively easy access to the field creates a separate but related issue. As more people gain access to these types of “low-hanging fruit,” the industries tend to become saturated, adding to the competition limitation holding back the median annual income of license holders. Even with the massive volume, most agents in the state average only a few thousand dollars a year in annual income, leading agents having to split their time between two jobs or even abandon the career in search of stable income. This is highlighted especially in markets along the coast where real estate is limited compared to the number of agents attempting to secure footing in the market. Due to this, many individuals that have grown up in these communities are forced to move to newer, less competitive, and less lucrative markets to sustain their careers. However, many still choose to abandon the journey altogether and search for different options outside the state. As these issues are exacerbated by a lack of similarly easy to access fields in the state, Maine continues to miss out on vast swaths of private development, as well as public revenues to help develop our domestic economy.
While the example of the Real Estate industry highlights the issues of a market being too easy to access, the second example highlights how the limited access to related fields exacerbates these types of problems.
The second program, Appraisal Services, is directly tied to the previous issue of competition and opportunity costs it presents across markets. While many states have sought to create a certain amount of “professionality” in their lucrative real estate/financing industries, that attitude creates a barrier holding back not only the potential income of those in the field but those fields directly tied to them.
In Maine, Appraisal Agents must pass a similar certification program as Real Estate Agents. After investing a few hundred dollars and passing a state-mandated exam, the only necessities for maintaining the license are paying your dues and attending the required continued education opportunities. The difference lies in who can access this program. While these barriers vary depending on which region of the US you are in, Maine requires individuals to hold at least an Associate Degree or 21 hours of education in required courses. For those that have similar geographical and service-based limitations, such as those discussed for Real Estate licensing, these issues are compounded by the financial investment one must make to complete an Associate Program.
This limitation has done two things for the appraisal industry in the state. Firstly, it has allowed numerous individuals to secure large swaths of a market that proves to be incredibly competitive on the other side of the coin. Secondly, it has limited the ability of the other side of the coin from effectively coming face side up, limiting the total actual output that the industry holds. To tie it into Maine’s most famous industry, lobstering. This problem could be compared to an industry where wharves and processing services retained current technology and efficiency well the lobstermen return to hauling individual traps by hand. Not only are the lobstermen missing out on income in that if they could catch more quickly, they would make more money, but as well, by limiting their capabilities, they are forcing the individuals who make their money processing their catch to lose out on potential income as well. This creates further problems as these secondary industries are forced to balance their labor force to optimize their services for existing rather than total potential output.
The final example hits home for many who have grown up in this unique and rugged land. Modern lobstering licensing programs incite a tremendous amount of controversy for those families that have been operating within the industry for generations. Without the ability to grandfather their license, as well as significant waits on the lists of people trying to obtain a permit, many of those in the younger generations are being forced to turn their sites away from their historic stomping grounds. This highlights how a licensing program intended to protect the livelihood of these individuals through effective stock management instead creates a system where these families are adversely affected and forced to remove themselves from local markets instead of living, working, and creating demand within these isolated communities.
One example of this is the town of Harpswell. For generations, and until the 1990s, many families in Harpswell made their income fishing and working along the rugged coast. Children would grow up swimming off of their family’s generational wharf, only to reach adulthood and launch from there to continue fishing the “hidden, hot spots” their fathers had only told them. However, and for many reasons, including a shifting demographic of who wanted to move to town, as these younger generations continued to see limited opportunity in local businesses and having their fall-back career of fishing being ripped away from them, they continued to search for opportunities elsewhere.
As this shift took hold, the consequences could be felt around town. With a lack of opportunity and sky-rocketing property values, many younger families looked elsewhere for where to establish themselves. Enrollment dropped between the towns two elementary schools that the programs were consolidated to just one school in 2011, chocking on almost 20 minutes to some families commutes due to the odd shape of the town. Services such as the local volunteer firefighters (the only FF’s in town) saw their enrollment drop and average age rise. This has led to fewer homes being saved from complete destruction, as well as the town beginning the effort of investigating the need for a public, centrally based agency.
This demonstrates how the intention of licensing can often be forgotten as the licensing programs are affected by lobbying over time. Not only does it create issues of increased barrier to entry and protection of established actors, but unintended consequences may also limit the ability of these established actors to continue to operate within their industries. As these individuals are removed and consolidation takes place, Monopoly power tends to increase. This, too, can be felt in the fishing industry as privately owned and captained boats are replaced by fleets and foreign ownership.
To protect the state from the numerous issues that licensing can present, the solution is relatively straightforward (and one of the few I can say I agree with neoliberals on), do away with the programs, and let the markets operate at their most efficient level.
While there are obvious cases where licensing should be put in place, the instances highlighted previously demonstrate that these arguments fail to apply to all industries uniformly. It is imperative to highlight both the industry limitations and the goal of the licensing programs to determine their efficacy.
For starters, programs such as Medical Professionals require a certain amount of education to ensure not only that the job is completed correctly but also that there is a certain level of trust between the service and those that are seeking out professionals in the field. The same can be said for why we have licensing programs for Real Estate Agents and Appraisal Agents. However, this highlights the importance of the purpose of the program is. If the intention is to ensure trust with the public, then the negative externality of limiting those that can access the career can be viewed as a positive when viewed as removing those “unfit” from obtaining the licensing. This outlook fails to acknowledge those that fail to complete the program due to no fault in character but instead in access. Because the issue of access is much more pertinent than the character of those seeking to license in our minimal state, the inefficiencies of this licensing program lead to losses in actual output. In acknowledgment of this, Maine must find a way to ensure that they recoup that loss. Opening up the ability of these license holders to offer services in the same capacity as similarly licensed individuals would allow for greater competition and broader areas of coverage for the more strained communities.
The same can be said for what is currently holding back Maine’s huge Real Estate industry. By opening up these industries to individuals, we will encourage competition, as well as domestic demand, as the lower-income populace finds more opportunity for social mobility. This case has been highlighted in the Lewiston-Auburn area over the past couple of decades. With easy access to Portland and other more developed economies, many saw an opportunity in the area. As more people began to move in, more Real Estate agencies set up shop, attracting appraisers and other legal services to the area. With the increased opportunity, more citizens of the two towns took advantage of these higher paying positions and moved from careers as day laborers and retail workers to agents, and other easier to access positions. Nowadays the largest hurdle is the lack of appraisers in the area, making real estate transactions slow and costly for those trying to establish in the area. By eliminating the education requirement we can help continue to foster the growth of these up and coming areas while also promoting the development of the surrounding communities as populations shift and new services are demanded.
As highlighted by the Maine State Economist’s office, we are currently presented with a rare opportunity. While birth rates continue to decline, in-migration continues to be on the rise. To help currently depressing communities best take advantage of these new, higher-paid families, opening up these mid-income careers to the existing populace will create a healthier and more sustainable economy for all. As highlighted in the previous post about the demand for services and how it affects municipality growth, migrating populations demand certain services in the areas they decide to move to. By limiting the existing population’s access to work in these fields, we deny ourselves the opportunity of those families settling in these up-and-coming areas. To protect private incomes and public revenue, we must once again shift our accreditation values to education rather than certification. Otherwise, we risk ruining this once-in-a-lifetime opportunity.
My Maine Musings 