"Rent-Seeking" Los Angeles

Does Los Angeles have a "rent seeking" problem?

No, I’m not referring to the many, critical housing issues of Los Angeles. In this case, “rent,” refers to “economic rent,” which is income gained through fabricated conditions of exclusivity. For example, if a gardener is willing to work for $12 per hour, but makes $15 per hour because they are licensed, their “economic rent” is $3. And, “rent-seeking,” is described as the attempt, by individuals or groups, to “obtain benefits for themselves through the political arena.” Therefore, whomever was responsible for the development of a gardening license (perhaps an association of gardeners), may be described as the party “seeking rent.”

Doesn’t sound too bad, right? This gardener, because of his or her license, not only earns more for their services, but potentially also provides consumers with higher levels of trust and confidence. However, as with almost everything in life, licensing results in a much more complicated system than the “win-win” scenario I just described. As this article explains, “rent-seeking” in America is on the rise and is more of an attempt to keep people out of industries and jobs than it is an attempt to protect consumers. Big industries and businesses, in particular, are using their political power to create licenses and certifications to maintain a strong grasp over the supply of their respective occupations. 

Guess who this is affecting the most? Well, for one, it’s impacting all of us. As this report indicates, occupational licensing is possibly costing our economy more than 2.5 million jobs. But, more importantly, this is impacting low-income individuals the most. Why? Well, as this Politco article describes:

Occupational licenses typically require individuals to receive approval from a government-chartered board before starting a particular job or business — a process that can be expensive, time-consuming, or both. Historically, licenses applied only to people in a limited number of professions, such as doctors, pilots and lawyers, yet the list of licensed industries has become more lengthy — and less defensible — in recent decades. Since the 1950s, the percentage of jobs licensed at the state level has quintupled, rising from 5 percent to at least 25 percent.

In other words, jobs with traditionally low barriers to entry are becoming more difficult to attain because of occupational licenses - that same article highlights some of the most unbelievable examples of "rent-seeking," such as the need for Barbers in Nevada to complete 890 days worth of training before obtaining a Barber’s license.

Even more troubling is that the impacts of “rent-seeking” go beyond individual low-income jobs; there’s evidence suggesting that the abuse of occupational licensing inhibits low-income entrepreneurship and contributes to rising levels of income inequality. It’s become such a serious issue that the White House recently prepared a very thorough framework for policymakers on how to recognize and reduce excessive occupational licensing.

Ready for more not-so-great news? According to this report on the occupational licensing rates of low- and moderate-income occupations, by the Institute for Justice, “California is the second most broadly and onerously licensed state in the country,” with 62 low-and moderate-income occupations requiring licenses, and “on average, applicants to licensed occupations can expect to pay $300, lose 549 days to education and experience requirements and pass one exam.”

So, back to my original question - does Los Angeles have a “rent-seeking” problem? Possibly. If we’re looking at the state of occupational licensing, specifically, there are a few interesting indicators that raise some concerns. Using the Institute for Justice’s criteria for low-and moderate-income occupations, I assembled data that take a close look at the number of jobs in Los Angeles that require licensing or specific amounts of training, their average wages, fees associated with these occupations, and the number of jobs available within these occupations (represented in the interactive dashboard below). Analysis of these variables finds that:

  • The average annual wage for the included occupations falls around $31k

  • The vast majority of jobs that pay a living wage require over 800 days of education/experience

One occupation that stands out is tree trimming. In Los Angeles, Tree Trimmers must pay a total of $851 in fees, pass two exams and undergo 1,460 days of education/experience - that’s double the amount of education/experience required for teachers assistants and more than triple the amount required for pre-school teachers.

I can’t state with absolute certainty that Los Angeles has a “rent-seeking” problem. In the example of tree trimming, I’m sure there are very good reasons why four years of education/experience are required - I mean, have you ever watched someone trim a tree? It can be a dangerous endeavor. As of now, however, I can say with confidence that this is an issue more people need to have on their radars and that more research is necessary. Increasing licensing trends and tactics to prevent and limit competition merit our careful attention. We all want to help create good jobs and have standards that protect workers and consumers alike, but we need to do our due diligence when proposing new systems and policies to make sure that the spillover effects of our efforts are not hurting those most in need.