James d. Gwartney

particularly those with the least amount of education.
Video:
Minimum Wage—Good or Bad Idea?
Regulations are particularly important in labor markets
(?)
. Many countries have
imposed regulations that interfere with and undermine the use of contracts or voluntary
agreements to deal with various issues. Dismissal regulations provide an example. A number
of European countries require employers who want to reduce the size of their workforce to (1)
obtain permission from political authorities; (2) notify the dismissed employees months in
advance; and (3) continue paying the dismissed employees for several more months.

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Such regulations may appear to be in the interests of workers, but the secondary effects
must be considered. Regulations that make it costly to dismiss workers also make it costly to
hire them. Employers will be reluctant to take on additional workers because of the high
dismissal costs. As a result, it will be difficult for new labor force entrants to find jobs, and the
growth of employment will be slowed. This has been the case in European countries, where
restrictive labor market regulations are more pronounced than in the United States. Such
regulations are a major reason why the unemployment rates of Western European countries
such as Italy, Spain, and France have been at least 4 or 5 percentage points higher than the
United States during the past couple of decades.
(27)
 Research by Steve Hanke at Johns Hopkins
University has found that between 2010 and 2015 unemployment rates in E.U. countries with
mandated minimum wages were up to 50 percent higher than in those E.U. countries without
mandated minimum wages.
Post-communist Russia provides an interesting laboratory to study the effects of
minimum wages. In 2007, the country more than doubled the federal minimum wage (and
increased it even more in some regions). Results suggest that this caused a decrease in
employment of young people and an increase in the size of the informal economy.
(28)
While hiring and dismissal regulations are generally less restrictive in the United States
than in Europe, occupational licensing
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 is a major labor market restriction in both the United
States and the European Union. Most of the occupational licensing in the United States occurs
at the state level. In order to obtain a license, one has to pay fees ranging from modest to
exorbitant, take training courses for 6 to 12 months, and pass examinations.
As recently as 1970, fewer than 15 percent of Americans worked in jobs that required a
license. Today, the figure is nearly 30 percent, and it is continuing to grow. In the mid-1980s,
800 occupations were licensed in at least one state. Now, according to the Council on
Licensure, Enforcement and Regulation, more than 1,100 occupations are licensed. Recent
studies find that approximately 22 percent of workers in the European Union are subject to
occupational licensing requirements, although the number and impact of such requirements
varies greatly across member countries, with Germany leading the pack at 33 percent. It has
been estimated that licensing reduced employment in related industries in the E.U. by
approximately 700,000 jobs in 2015. The same study also found that the above-market wages

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associated with restrictive licensing contributes to income inequality within the E.U.
(29)
The supporters of licensing argue that it is necessary to protect consumers from shoddy
and potentially unsafe products. But, licenses are required in numerous occupations that have
little to do with public safety or protection of the consumer.
(30)
For example, one or more states
in the United States require a person to be licensed in order to work in the following
occupations: interior designer, makeup artist, florist, hair braider, shampoo specialist, dietician,
private detective, athletic trainer, tour guide, hearing-aid fitter, funeral attendant, casket seller,
and even ferret breeder and palm reader. The pressure for licensing seldom originates from
consumer groups. Instead, it nearly always arises from those already in the occupation. This is
not surprising to economists because the current suppliers are the primary beneficiaries of
licensing.
Individuals can often acquire the skills necessary for high-level performance in many
licensed occupations through on-the-job experience and working with others skilled in the
trade. The licensing requirements prohibit persons developing their skills via these methods
from pursuing their desired career. Licensing, particularly when it mandates lengthy formal
training and levies expensive fees, reduces supply and drives up the price of the goods and
services provided by the licensed practitioners. Those currently in the occupation gain at the
expense of consumers and unlicensed potential producers. The employment opportunities of
the unlicensed producers are diminished and potential gains from trade lost.