[This post was originally written for my employer’s blog, Show-Me Daily.]

In addition to my involvement with the Show-Me Institute, I have also worked part-time as a licensed taxicab driver for Chesterfield Car Service, for a little more than three years. Apart from licensing drivers, the cabs themselves also require a license, which must similarly be renewed annually. Earlier today, I reported to the company parking lot where an inspector was going through the routine on some of our company’s cars. As I understand it, the inspector is an employee of the Metropolitan Taxicab Commission who performs inspections year-round on taxis in St. Louis. Between 8:00 a.m. and noon, today and tomorrow, all 30 or so taxis in our company will be inspected.

The inspection largely consists of giving the exterior a once-over glance and checking a few necessary things, such as brake lights and blinkers. Some cabs get a more thorough inspection than others, but it seems that the inspector is mostly looking for glaring defects or safety hazards. The inspector also verifies that the car’s meter has been recently inspected by a third-party meter inspecting agent, and that the car has proper insurance. The meter inspection is another required annual appointment, usually completed a week or two prior to the vehicle inspection. 

If the inspector finds a defect, it must be repaired before the car can continue to operate as a taxi in the Metropolitan Taxicab Commission (MTC) district (both St. Louis County and city — other areas have their own taxi certification agencies and processes). I’m pretty sure this is why the inspection is typically scheduled over two days, so that defects spotted on day one can be repaired and ready for day two.

Show-Me Institute scholars have spoken out a few times about the subject of professional licensing. This is certainly another example of an area where market forces, rather than government bureaucracy, would most efficiently produce the quantity and quality of services that people want. The MTC limits both the number and quality of taxis in its district, as well as the prices these taxis can charge. Limiting number or quality leads to increased prices, as basic economics would indicate. Price ceilings lead to shortages, made worse by the other limitations on quantity and quality. If you’ve ever been to Mardi Gras in St. Louis, participated in New Year’s Eve festivities, or even attended a Blues or Cardinals game, and tried to get a taxi, it is likely that you had to wait a long time — especially during those once-a-year holidays. Granted, I and other taxi drivers working at those times make a terrific hourly rate — especially for an occupation requiring practically no special training, education, or experience — but I care more about fostering a market in which customers get the taxi services they want than I do about making good money a few days per year.

Like most other businesses and services, you can get a pretty good idea about what kind of taxi you’re stepping into with just a superficial examination. Also like other businesses, it is difficult for taxicab companies to persist in the market if they don’t engender repeat business by offering good quality and reasonable prices. Market forces push toward price equilibrium, and entrepreneurs predictably exploit arbitrage opportunities, bringing people what they want more often in more efficient ways. The market would be a better steward of taxi services in St. Louis than the MTC is today.

[This post was originally written for my employer’s blog, Show-Me Daily.]

In the very readable Capitalism and Freedom, Nobel laureate economist Milton Friedman wrote about the economic consequences of labor unions, minimum wage laws, and occupational licensing. Anyone with even minor economics training (or perhaps even just a moment’s reflection) can tell you some of the basic costs and benefits of each. Simply put, they all involve concentrated, visible benefits and dispersed or difficult-to-detect costs. 

We’ve definitely talked about licensing here at the Show-Me Institute before; of the three topics listed above, it’s certainly the one we’ve dealt with most (perhaps because David Stokes has such a special place in his ire for the rent-seeking usually implied by occupational licensing). There may be a problem with the way labor economists percieve these three topics, however.

According to a recent post on Overcoming Bias, the preeminent textbooks deal with these topics out of all proportion from reality. According to the post:

In the U.S. now, less than 3% of workers earn the minimum wage, about 12% are in unions, and about 29% are required to hold a state-issued license to do their work.

In the popular textbooks however, slightly less space is devoted to minimum wage than labor unions, and licensing is covered scarcely at all.

Perhaps our fight against occupational licensing would be an easier one if labor economists spent more time covering the topic during their formative years. Or, perhaps more people should tell their friends about the simple arguments against most occupational licensing: barriers to entry increase price, often with no meaningful effect on quality — and quality is often best determined by success or failure in a competitive marketplace.