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Episode 381: When Business Loves Regulation

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Episode 381: When Business Loves Regulation

Episode 381: When Business Loves Regulation

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  • Transcript

JACOB GOLDSTEIN, HOST:

Hey, it's Jacob Goldstein. Today's show is a rerun that originally aired in 2012. Here it is.

(SOUNDBITE OF ARCHIVED BROADCAST)

GOLDSTEIN: A few years ago, Jestina Clayton started a hair braiding business in her home in Centerville, Utah. She had learned to braid hair as a girl growing up in Sierra Leone, and in Utah she found this little niche working for local families that had adopted kids from Africa. Her business let her stay home with her own kids, and in some months she made enough to pay for groceries. She even put an ad on a local website. Then one day she got an email from a stranger who had seen the ad.

JESTINA CLAYTON: It said it's illegal in the state of Utah to do any kind of extensions without a cosmetology license. And I thought, no way. I responded. I said, go ahead and report me.

GOLDSTEIN: But just to be on the safe side, she called the state licensing office. And she found out that she did need a license, and that to get it she'd have to spend more than a year in cosmetology school. Tuition would cost $16,000 or more.

CLAYTON: I was really upset. You know, who am I threatening here? I did a lot of talking to my husband. He listened. He listened. He was very kind.

GOLDSTEIN: Hello and welcome to PLANET MONEY. I'm Jacob Goldstein.

ALEX BLUMBERG, HOST:

And I'm Alex Blumberg. And today on the program why it's illegal to braid hair in Utah without a license, and why that rule and others like it are a disaster for the U.S. economy.

(SOUNDBITE OF ANDREA PERRY AND SARAH SHARP'S "DESTROY ME")

GOLDSTEIN: After she got that email and found out she needed a license, Jestina closed down her business. She figured it just wasn't worth the time and money to go to school. But she did get to go and make her case to the board that regulates hair braiding in Utah.

BLUMBERG: Full name of that board, by the way - the Barber, Cosmetology/Barber, Esthetics, Electrology and Nail Technology Licensing Board.

GOLDSTEIN: Thank you. So get ready for her meeting with the BCBEENTLB, Jestina called around to different cosmetology schools in Utah. She found out those schools taught little or nothing about the African-style hair braiding that she did. She also learned that there are some other states where people can do African hair braiding if they pass just a basic safety and hygiene test and pay a registration fee. And so she took all this and put it together into a PowerPoint presentation explaining these things. And then she went to the board meeting and waited outside the meeting room while the board took care of its other business.

CLAYTON: So finally it was my turn. And I got in and I was super nervous. I stood up and I started talking. And there was this one lady who just kept making, you know, just sounds as I would talk, this like, yeah - you know, just under her breath. She kept doing that. And then...

GOLDSTEIN: And what was the impression you got from what she was doing?

CLAYTON: That she didn't believe anything that I said. The chair of the meeting, she said that I would have to change the law because as the law is written if you touch her for money, if you style her for money, then you need a cosmetology license. She said there's nothing that they can do.

GOLDSTEIN: What happened to Jestina happens all the time with all different kinds of jobs all around the country. There is this patchwork quilt of state licensing laws, and it covers hundreds of different professions. It's not just, you know, doctors and lawyers. It's garage door repairmen. It's interior designers. It's landscapers, athletic trainers, masseuses and literally hundreds of other professions.

BLUMBERG: And the ostensible reason for all these licensing requirements is that these requirements protect the public in some way. Charles Wheelan teaches public policy at Dartmouth and the University of Chicago. And he says that may be true, but for people in licensed fields a licensing law can serve an entirely different purpose altogether.

CHARLES WHEELAN: It's also a way to make your competition go away. And that, if you are practicing a profession, anything - so let's use manicurists as an example. And there's a lot of competition, say, from Asian immigrants, which was the case in Chicago. And you want to limit that competition. You can go to your state legislature and you can say, you know what? It should be harder to be a manicurist. You should have to pass an exam or hold a degree or do assorted other things. And in that case you've really just built a fence around your profession that keeps out competition, lowers supply. And basic economics says that means you're going to do better. You'll either to get paid more or you'll have more work.

GOLDSTEIN: And for the rest of us - that is, for those of us getting manicures - this means that manicures are more expensive.

BLUMBERG: Maybe you've noticed that yourself. I'm paying an extra dollar or two for my manicure. Now, that might not be a big deal. Maybe it doesn't bother you that much. But there is this other big problem with these licensing laws. They make it harder for people to find work. One clear example is Jestina, who we heard from at the top. You know, to get work in this profession, now she has to go to school. She has to spend a lot of money. But even if you have a license, chances are it's a state license and it probably won't work in another state.

WHEELAN: Well, licensing is not particularly good for anybody who's trying to switch professions or trying to move to another location where the economy may be better. So we know in general mobility is pretty good as a salve for a bad economy because some places are going to be stronger than others. So people may be leaving Michigan when the auto economy is weak, they may be going to the southwest if there's a lot of growth there. So part of what we like about the labor market is you get price signals and unemployment signals. And people should go where there's demand.

As soon as you introduce state licensing it just makes it that much harder for people to do those things. And I want to go on record as saying that I'm not averse to regulation in general. And I'm not even averse to the idea of licensing some professions. I just think that we've done it so horribly and so scattershot in terms of who gets licensed and what they have to do to become licensed that it's become kind of a monster.

BLUMBERG: And the monster is huge. You know, we're talking about a big swath of the labor market here. Just to give you a comparison, back in the '50s, 1 in 20 jobs required a license. Today 1 in every 3 jobs requires a license.

GOLDSTEIN: So we have this situation where at least in some cases consumers and the economy are being hurt. And it seems like the only people who benefit are actually the ones in the industries that are being regulated.

BLUMBERG: Which is interesting, right? You always hear this idea that business is opposed to regulation, that businesses generally want less regulation. And as we've talked about in the podcast - and this is one of these examples - businesses are often in favor of regulation. In fact, they love it for exactly the reasons we're talking about. It helps make them more money. Although, says Charlie Wheelan, that's not what they say to the legislatures when they're trying to get these licensing requirements passed.

WHEELAN: You can't go to the government and say, hey, pay me some money because that's quite transparently not the right thing to do. What they typically do is they go to the legislature. And they don't say it quite like I'm going to say, but they essentially say, we're really dangerous. You need to protect the public from us. When I wrote my dissertation, I actually had some case studies. I looked at respiratory therapists. In the case of the respiratory therapist, when they went to Springfield, they actually had a videotape of a truck blowing up. And the reason the truck was blowing up as it was transporting oxygen in a way that was inappropriate. And they said look - we can blow things up. Protect the public from us.

GOLDSTEIN: Cosmetologists - as far as I know, they cannot blow up trucks, but I did call Myra Irizarry. She works for the Professional Beauty Association. This is a trade group. And she actually listed for me all the ways that untrained cosmetologists could harm people.

MYRA IRIZARRY: There could be open wounds. There could be cuts. Pathogens could be transmitted. You know, we have people that are practicing this field that could really, you know, do wonderful things for your appearance and for your face and for your skin, but also could harm you. These regulations are a requirement and a necessity for consumer safety. I don't think that there's any way to go around consumer safety.

BLUMBERG: Now, when it comes to hair braiding, Charlie Wheelan, our expert, doesn't buy Myra Irizarry's argument. To him, this is this classic situation where, you know, a small group of people have passed a regulation that benefits them, when he was talking to you, Jacob, he called it the winners singing louder than the losers cry. You know, you've got this small group who benefit quite a bit from these regulations. And then you've got this much larger group - consumers - who are harmed in this very minor way that maybe they don't even notice.

GOLDSTEIN: And then you have this third group. This is people who want to work in a field, but can't - people obviously like Jestina Clayton. And for them, the pain of this can really be acute. Jestina - she talked to me about how she grew up in Sierra Leone in the middle of a civil war and then she came to America. And she had these ideas about America. And, you know, when she talks about this, it's a very emotional thing.

CLAYTON: I was 9 when our civil war started. And, you know, for a long time, just - it's just been survival, you know. Just making sure that the next day is, you know - that I'm alive the next day. That my family's alive - that my friends are. And then, you know, I finally make it here. And, you know, growing up, you just know America's the place to be. It's just - you have lots of options. Your potential for getting from one low end and to a higher end is - increases when you are here. And just not being able to do that - just - I don't know. I don't know. I'm going to be patient. I'm going to be patient. I'm going to hope for the best.

GOLDSTEIN: Jestina has hooked up with a legal group called the Institute for Justice. This is a libertarian group. They're actually suing the state of Utah on Jestina's behalf, and they've filed a bunch of lawsuits in states around the country challenging different licensing rules.

BLUMBERG: And, you know, licensing rules have been a traditional battleground for libertarians. In fact, you know, Robert Smith did the story a while ago about, like, a libertarian who staged a protest by manicuring somebody's fingernails on the governor's mansion lawn. But there's also this big anti-licensing push now from the left from more liberal economists and activists. Michelle Obama has been talking about making things easier for the spouses of people who work in the military. They often have a hard time with licensing rules when they move from state to state. And Alan Krueger - he's now the chairman of President Obama's council of economic advisers - he co-wrote this proposal that basically said states should get rid of their licensing rules if they're doing more harm than good.

GOLDSTEIN: And that's a useful way to think about it, I find, because, you know, people often think about this issue as should a given profession be licensed or not? Yes or no. And people like Charlie Wheelan - they say that's the wrong way to think about this. The question is - do the regulations - the licensing rules - do they actually do what they claim? Do they protect the public?

WHEELAN: It's not sufficient to tell me that somebody can do harm in a given profession. Anybody can do harm in a profession if you're really incompetent enough. The burden of proof has to be on you to prove to me, the legislature, that whatever licensure mechanism we put in place will actually solve this problem, will actually elevate quality. It shouldn't be just a foregone conclusion that if you're potentially dangerous, anything we throw on the books is going to be an improvement.

BLUMBERG: Some state lawmakers have also started to push back against licensing requirements. In Florida, there was a bill introduced to loosen requirements, for among other things, dance studios and auctioneers.

GOLDSTEIN: And last year, a legislator in Utah actually introduced a bill to allow African-style hair braiding without a license. But when Jestina went to testify at the hearing, she found the room packed with cosmetologists and cosmetology students.

CLAYTON: Somebody told me that they're all, you know, cosmetologists. Apparently, they gave them the day off from school so they could come and protest this bill. It was intense.

GOLDSTEIN: The cosmetologists succeeded. The bill - it didn't become a law, and it is still illegal in Utah to braid hair for money without a license.

(SOUNDBITE OF ANDREA PERRY AND SARAH SHARP'S "DESTROY ME")

GOLDSTEIN: That was how the show ended back in 2012. I'll have an update on what happened since then after this.

(SOUNDBITE OF ANDREA PERRY AND SARAH SHARP'S "DESTROY ME")

GOLDSTEIN: Just a few months after we did this story, Jestina won her case in court. A judge said the cosmetology law should not apply to her business, and a few months after that, the Utah governor made it official. He signed into law a bill that makes it legal to braid hair in Utah without a license. Jestina was able to go back to her business.

In the years since then, this issue has continued to be a thing. In fact, one case went all the way to the Supreme Court. In that case, the dental board in North Carolina had barred spas and hair salons from doing teeth whitening. They said that could only happen at the dentist's office. The Obama administration intervened, saying hair salons and spas could do teeth whitening. And when it got to the Supreme Court, the court ruled against the dental board. It is now legal for spas and hair salons in North Carolina to do teeth whitening.

You can email us at planetmoney@npr.org or find us on Facebook or Twitter. Today's show was originally produced by Jess Jiang. Today's update was produced by Sally Helm. If you're looking for something else to listen to, check out 1A. 1A is a daily talk show from NPR hosted by Joshua Johnson. It's the number one and the letter A. You can find it on the NPR One app or wherever you get your podcasts. I'm Jacob Goldstein. Thanks for listening.

(SOUNDBITE OF ANDREA PERRY AND SARAH SHARP'S "DESTROY ME")

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