With fewer government hurdles, minority entrepreneurs can overcome racial economic gaps.
by Alfredo Ortiz, Wednesday, January 11, 2023 FEE Daily
Ashley N’Dakpri runs Afro Touch, a hair-braiding salon in Louisiana. She wants to hire more stylists to meet demand, but Louisiana’s strict occupational licensing regulations prevent her from doing so.
Ashley legally isn’t allowed to hire new stylists unless they have a cosmetologist’s license, a certification that requires five hundred hours of training and thousands of dollars in fees to obtain. She notes that many potential employees are no longer interested in working for her once they discover the onerous occupational licensing requirements.
State-level occupational licenses are a major barrier to minority entrepreneurship. These licenses prevent many minorities from starting their own businesses in fields across the economic spectrum.
The beauty industry is perhaps the most egregious example of a field whose occupational licensing requirements prevent minority entrepreneurship, but these licenses are also found in many other industries popular with minority entrepreneurs, including construction, childcare, and pest control.
Cosmetology licenses are often far more difficult to get than licenses for professions that deal with life and death. In Massachusetts, for instance, cosmetologists must complete one thousand hours of coursework and two years of apprenticeship before they are allowed to ply their trade in the beauty industry. Emergency medical technicians, by contrast, must only take 150 hours of courses to be allowed to work.
What are these occupational licenses protecting consumers from? A bad hair day? These permits present an enormous entrepreneurial barrier to mostly minority women. According to a study by the Institute of Justice, Louisiana has just thirty-two licensed African hair braiders. In stark contrast, neighboring Mississippi, which has approximately four hundred thousand fewer black residents but doesn’t regulate hair braiding, has 1,200.
California is the worst occupational licensing offender, according to IJ, putting up “a nearly impenetrable thicket of bureaucracy.” Basic trades such as door repair, carpentry, and landscaping require potential entrepreneurs to devote 1,460 days to supervised practice and spend up to thousands of dollars for a license before they can legally work.
Nearly one-quarter of American workers hold a license, according to the Labor Department, up from about 5 percent in the 1950s. Unsurprisingly, a Federal Reserve Bank of Minnesota report concluded that minorities are significantly less likely to hold a license than whites.
Research by economist Stephen Slivinski indicates that licensing requirements reduce minority entrepreneurship. He finds that states that require more occupational licenses have lower rates of low-income entrepreneurship.
It’s already difficult enough for minority entrepreneurs to find a product that fills a gap in the market and outcompete established players without simultaneously worrying about the government hamstringing them through bad policies like excessive occupational licensing.
With fewer government hurdles, minority entrepreneurs can more readily overcome racial economic gaps through their own inspiration and ingenuity.