Archives For occupational licensing

Why Competition Enforcers’ Annual Roundtable Should Focus on Competition Advocacy and Combating Anticompetitive Market Distortions

Alden Abbott —  22 March 2023

Spring is here, and hope springs eternal in the human breast that competition enforcers will focus on welfare-enhancing initiatives, rather than on welfare-reducing interventionism that fails the consumer welfare standard.

Fortuitously, on March 27, the Federal Trade Commission (FTC) and U.S. Justice Department (DOJ) are hosting an international antitrust-enforcement summit, featuring senior state and foreign antitrust officials (see here). According to an FTC press release, “FTC Chair Lina M. Khan and DOJ Assistant Attorney General Jonathan Kanter, as well as senior staff from both agencies, will facilitate discussions on complex challenges in merger and unilateral conduct enforcement in digital and transitional markets.”

I suggest that the FTC and DOJ shelve that topic, which is the focus of endless white papers and regular enforcement-oriented conversations among competition-agency staffers from around the world. What is there for officials to learn? (Perhaps they could discuss the value of curbing “novel” digital-market interventions that undermine economic efficiency and innovation, but I doubt that this important topic would appear on the agenda.)

Rather than tread familiar enforcement ground (albeit armed with novel legal theories that are known to their peers), the FTC and DOJ instead should lead an international dialogue on applying agency resources to strengthen competition advocacy and to combat anticompetitive market distortions. Such initiatives, which involve challenging government-generated impediments to competition, would efficiently and effectively promote the Biden administration’s “whole of government” approach to competition policy.

Competition Advocacy

The World Bank and the Organization for Economic Cooperation and Development (OECD) have jointly described the role and importance of competition advocacy:

[C]ompetition may be lessened significantly by various public policies and institutional arrangements as well [as by private restraints]. Indeed, private restrictive business practices are often facilitated by various government interventions in the marketplace. Thus, the mandate of the competition office extends beyond merely enforcing the competition law. It must also participate more broadly in the formulation of its country’s economic policies, which may adversely affect competitive market structure, business conduct, and economic performance. It must assume the role of competition advocate, acting proactively to bring about government policies that lower barriers to entry, promote deregulation and trade liberalization, and otherwise minimize unnecessary government intervention in the marketplace.

The FTC and DOJ have a proud history of competition-advocacy initiatives. In an article exploring the nature and history of FTC advocacy efforts, FTC scholars James Cooper, Paul Pautler, & Todd Zywicki explained:

Competition advocacy, broadly, is the use of FTC expertise in competition, economics, and consumer protection to persuade governmental actors at all levels of the political system and in all branches of government to design policies that further competition and consumer choice. Competition advocacy often takes the form of letters from the FTC staff or the full Commission to an interested regulator, but also consists of formal comments and amicus curiae briefs.

Cooper, Pautler, & Zywicki also provided guidance—derived from an evaluation of FTC public-interest interventions—on how advocacy initiatives can be designed to maximize their effectiveness.

During the Trump administration, the FTC’s Economic Liberty Task Force shone its advocacy spotlight on excessive state occupational-licensing restrictions that create unwarranted entry barriers and distort competition in many lines of work. (The Obama administration in 2016 issued a report on harms to workers that stem from excessive occupational licensing, but it did not accord substantial resources to advocacy efforts in this area.)

Although its initiatives in this area have been overshadowed in recent decades by the FTC, DOJ over the years also has filed a large number of competition-advocacy comments with federal and state entities.

Anticompetitive Market Distortions (ACMDs)

ACMDs refer to government-imposed restrictions on competition. These distortions may take the form of distortions of international competition (trade distortions), distortions of domestic competition, or distortions of property-rights protection (that with which firms compete). Distortions across any of these pillars could have a negative effect on economic growth. (See here.)

Because they enjoy state-backed power and the force of law, ACMDs cannot readily be dislodged by market forces over time, unlike purely private restrictions. What’s worse, given the role that governments play in facilitating them, ACMDs often fall outside the jurisdictional reach of both international trade laws and domestic competition laws.

The OECD’s Competition Assessment Toolkit sets forth four categories of regulatory restrictions that distort competition. Those are provisions that:

  1. limit the number or range of providers;
  2. limit the ability of suppliers to compete;
  3. reduce the incentive of suppliers to compete; and that
  4. limit the choices and information available to consumers.

When those categories explicitly or implicitly favor domestic enterprises over foreign enterprises, they may substantially distort international trade and investment decisions, to the detriment of economic efficiency and consumer welfare in multiple jurisdictions.

Given the non-negligible extraterritorial impact of many ACMDs, directing the attention of foreign competition agencies to the ACMD problem would be a particularly efficient use of time at gatherings of peer competition agencies from around the world. Peer competition agencies could discuss strategies to convince their governments to phase out or limit the scope of ACMDs.

The collective action problem that may prevent any one jurisdiction from acting unilaterally to begin dismantling its ACMDs might be addressed through international trade negotiations (perhaps, initially, plurilateral negotiations) aimed at creating ACMD remedies in trade treaties. (Shanker Singham has written about crafting trade remedies to deal with ACMDs—see here, for example.) Thus, strategies whereby national competition agencies could “pull in” their fellow national trade agencies to combat ACMDs merit exploration. Why not start the ball rolling at next week’s international antitrust-enforcement summit? (Hint, why not pull in a bunch of DOJ and FTC economists, who may feel underappreciated and underutilized at this time, to help out?)

Conclusion

If the Biden administration truly wants to strengthen the U.S. economy by bolstering competitive forces, the best way to do that would be to reallocate a substantial share of antitrust-enforcement resources to competition-advocacy efforts and the dismantling of ACMDs.

In order to have maximum impact, such efforts should be backed by a revised “whole of government” initiative – perhaps embodied in a new executive order. That new order should urge federal agencies (including the “independent” agencies that exercise executive functions) to cooperate with the DOJ and FTC in rooting out and repealing anticompetitive regulations (including ACMDs that undermine competition by distorting trade flows).

The DOJ and FTC should also be encouraged by the executive order to step up their advocacy efforts at the state level. The Office of Management and Budget (OMB) could be pulled in to help identify ACMDs, and the U.S. Trade Representative’s Office (USTR), with DOJ and FTC economic assistance, could start devising an anti-ACMD negotiating strategy.

In addition, the FTC and DOJ should directly urge foreign competition agencies to engage in relatively more competition advocacy. The U.S. agencies should simultaneously push to make competition-advocacy promotion a much higher International Competition Network priority (see here for the ICN Advocacy Working Group’s 2022-2025 Work Plan). The FTC and DOJ could simultaneously encourage their competition-agency peers to work with their fellow trade agencies (USTR’s peer bureaucracies) to devise anti-ACMD negotiating strategies.

These suggestions may not quite be ripe for meetings to be held in a few days. But if the administration truly believes in an all-of-government approach to competition, and is truly committed to multilateralism, these recommendations should be right up its alley. There will be plenty of bilateral and plurilateral trade and competition-agency meetings (not to mention the World Bank, OECD, and other multilateral gatherings) in the next year or so at which these sensible, welfare-enhancing suggestions could be advanced. After all, “hope springs eternal in the human breast.”

In Antitrust & Competition, Antitrust Division, Federal Trade Commission, International, Justice Department, Platforms, Truth on the Market , , , , , , , , ,
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Labor Antitrust Analysis Should Focus on Actual Anticompetitive Agreements

Alden Abbott —  5 May 2022

Biden administration enforcers at the U.S. Justice Department (DOJ) and the Federal Trade Commission (FTC) have prioritized labor-market monopsony issues for antitrust scrutiny (see, for example, here and here). This heightened interest comes in light of claims that labor markets are highly concentrated and are rife with largely neglected competitive problems that depress workers’ income. Such concerns are reflected in a March 2022 U.S. Treasury Department report on “The State of Labor Market Competition.”

Monopsony is the “flip side” of monopoly and U.S. antitrust law clearly condemns agreements designed to undermine the “buyer side” competitive process (see, for example, this U.S. government submission to the OECD). But is a special new emphasis on labor markets warranted, given that antitrust enforcers ideally should seek to allocate their scarce resources to the most pressing (highest valued) areas of competitive concern?

A May 2022 Information Technology & Innovation (ITIF) study from ITIF Associate Director (and former FTC economist) Julie Carlson indicates that the degree of emphasis the administration’s antitrust enforcers are placing on labor issues may be misplaced. In particular, the ITIF study debunks the Treasury report’s findings of high levels of labor-market concentration and the claim that workers face a “decrease in wages [due to labor market power] at roughly 20 percent relative to the level in a fully competitive market.” Furthermore, while noting the importance of DOJ antitrust prosecutions of hard-core anticompetitive agreements among employers (wage-fixing and no-poach agreements), the ITIF report emphasizes policy reforms unrelated to antitrust as key to improving workers’ lot.

Key takeaways from the ITIF report include:

  • Labor markets are not highly concentrated. Local labor-market concentration has been declining for decades, with the most concentrated markets seeing the largest declines.
  • Labor-market power is largely due to labor-market frictions, such as worker preferences, search costs, bargaining, and occupational licensing, rather than concentration.
  • As a case study, changes in concentration in the labor market for nurses have little to no effect on wages, whereas nurses’ preferences over job location are estimated to lead to wage markdowns of 50%.
  • Firms are not profiting at the expense of workers. The decline in the labor share of national income is primarily due to rising home values, not increased labor-market concentration.
  • Policy reform should focus on reducing labor-market frictions and strengthening workers’ ability to collectively bargain. Policies targeting concentration are misguided and will be ineffective at improving outcomes for workers.

The ITIF report also throws cold water on the notion of emphasizing labor-market issues in merger reviews, which was teed up in the January 2022 joint DOJ/FTC request for information (RFI) on merger enforcement. The ITIF report explains:

Introducing the evaluation of labor market effects unnecessarily complicates merger review and needlessly ties up agency resources at a time when the agencies are facing severe resource constraints.48 As discussed previously, labor markets are not highly concentrated, nor is labor market concentration a key factor driving down wages.

A proposed merger that is reportable to the agencies under the Hart-Scott-Rodino Act and likely to have an anticompetitive effect in a relevant labor market is also likely to have an anticompetitive effect in a relevant product market. … Evaluating mergers for labor market effects is unnecessary and costly for both firms and the agencies. The current merger guidelines adequately address competition concerns in input markets, so any contemplated revision to the guidelines should not incorporate a “framework to analyze mergers that may lessen competition in labor markets.” [Citation to Request for Information on Merger Enforcement omitted.]

In sum, the administration’s recent pronouncements about highly anticompetitive labor markets that have resulted in severely underpaid workers—used as the basis to justify heightened antitrust emphasis on labor issues—appear to be based on false premises. As such, they are a species of government misinformation, which, if acted upon, threatens to misallocate scarce enforcement resources and thereby undermine efficient government antitrust enforcement. What’s more, an unnecessary overemphasis on labor-market antitrust questions could impose unwarranted investigative costs on companies and chill potentially efficient business transactions. (Think of a proposed merger that would reduce production costs and benefit consumers but result in a workforce reduction by the merged firm.)

Perhaps the administration will take heed of the ITIF report and rethink its plans to ramp up labor-market antitrust-enforcement initiatives. Promoting pro-market regulatory reforms that benefit both labor and consumers (for instance, excessive occupational-licensing restrictions) would be a welfare-superior and cheaper alternative to misbegotten antitrust actions.

In Antitrust & Competition, Antitrust Division, Barriers to Entry, Exclusionary Conduct, Exclusive Dealing, Federal Trade Commission, Justice Department, Monopolization, Truth on the Market, Vertical Restraints , , , , , , , , ,
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A First Glance at the Biden Executive Order on Competition: The Good and the Bad (Including Much that Looks Ugly)

Alden Abbott —  9 July 2021

The Biden Administration’s July 9 Executive Order on Promoting Competition in the American Economy is very much a mixed bag—some positive aspects, but many negative ones.

It will have some positive effects on economic welfare, to the extent it succeeds in lifting artificial barriers to competition that harm consumers and workers—such as allowing direct sales of hearing aids in drug stores—and helping to eliminate unnecessary occupational licensing restrictions, to name just two of several examples.

But it will likely have substantial negative effects on economic welfare as well. Many aspects of the order appear to emphasize new regulation—such as Net Neutrality requirements that may reduce investment in broadband by internet service providers—and imposing new regulatory requirements on airlines, pharmaceutical companies, digital platforms, banks, railways, shipping, and meat packers, among others. Arbitrarily imposing new rules in these areas, without a cost-beneficial appraisal and a showing of a market failure, threatens to reduce innovation and slow economic growth, hurting producers and consumer. (A careful review of specific regulatory proposals may shed greater light on the justifications for particular regulations.)

Antitrust-related proposals to challenge previously cleared mergers, and to impose new antitrust rulemaking, are likely to raise costly business uncertainty, to the detriment of businesses and consumers. They are a recipe for slower economic growth, not for vibrant competition.

An underlying problem with the order is that it is based on the false premise that competition has diminished significantly in recent decades and that “big is bad.” Economic analysis found in the February 2020 Economic Report of the President, and in other economic studies, debunks this flawed assumption.

In short, the order commits the fundamental mistake of proposing intrusive regulatory solutions for a largely nonexistent problem. Competitive issues are best handled through traditional well-accepted antitrust analysis, which centers on promoting consumer welfare and on weighing procompetitive efficiencies against anticompetitive harm on a case-by-case basis. This approach:

  1. Deals effectively with serious competitive problems; while at the same time
  2. Cabining error costs by taking into account all economically relevant considerations on a case-specific basis.

Rather than using an executive order to direct very specific regulatory approaches without a strong economic and factual basis, the Biden administration would have been better served by raising a host of competitive issues that merit possible study and investigation by expert agencies. Such an approach would have avoided imposing the costs of unwarranted regulation that unfortunately are likely to stem from the new order.

Finally, the order’s call for new regulations and the elimination of various existing legal policies will spawn matter-specific legal challenges, and may, in many cases, not succeed in court. This will impose unnecessary business uncertainty in addition to public and private resources wasted on litigation.

In Administrative Law, Antitrust & Competition, Antitrust Division, Banking, Broadband, Data Privacy & Security, Error Costs, Federal Communications Commission, Federal Trade Commission, Financial Regulation, Health Care, Intellectual Property, Justice Department, Merger Guidelines, Mergers & Acquisitions, Monopolization, Net Neutrality, Pharmaceuticals, Platforms, Regulation, Telecommunications, Truth on the Market , , , , , , , , , , , , , , , , ,
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For the Bar, Competition is Always “Unethical”

Jonathan M. Barnett —  8 June 2020

This guest post is by Jonathan M. Barnett, Torrey H. Webb Professor of Law at the University of Southern California, Gould School of Law.

State bar associations, with the backing of state judiciaries and legislatures, are typically entrusted with a largely unqualified monopoly over licensing in legal services markets. This poses an unavoidable policy tradeoff. Designating the bar as gatekeeper might protect consumers by ensuring a minimum level of service quality. Yet the gatekeeper is inherently exposed to influence by interests with an economic stake in the existing market. Any licensing requirement that might shield uninformed consumers from unqualified or opportunistic lawyers also necessarily raises an entry barrier that protects existing lawyers against more competition. A proper concern for consumer welfare therefore requires that the gatekeeper impose licensing requirements only when they ensure that the efficiency gains attributable to a minimum quality threshold outweigh the efficiency losses attributable to constraints on entry.

There is increasing reason for concern that state bar associations are falling short of this standard. In particular, under the banner of “legal ethics,” some state bar associations and courts have blocked or impeded entry by innovative “legaltech” services without a compelling consumer protection rationale.

The LegalMatch Case: A misunderstood platform

This trend is illustrated by a recent California appellate court decision interpreting state regulations pertaining to legal referral services. In Jackson v. LegalMatch, decided in late 2019, the court held that LegalMatch, a national online platform that matches lawyers and potential clients, constitutes an illegal referral service, even though it is not a “referral service” under the American Bar Association’s definition of the term, and the California legislature had previously declined to include online services within the statutory definition.

The court’s reasoning: the “marketing” fee paid by subscribing attorneys to participate in the platform purportedly runs afoul of state regulations that proscribe attorneys from paying a fee to referral services that have not been certified by the bar. (The lower court had felt differently, finding that LegalMatch was not a referral service for this purpose, in part because it did not “exercise any judgment” on clients’ legal issues.)

The court’s formalist interpretation of applicable law overlooks compelling policy arguments that strongly favor facilitating, rather than obstructing, legal matching services. In particular, the LegalMatch decision illustrates the anticompetitive outcomes that can ensue when courts and regulators blindly rely on an unqualified view of platforms as an inherent source of competitive harm.

Contrary to this presumption, legal services referral platforms enhance competition by reducing transaction-cost barriers to efficient lawyer-client relationships. These matching services benefit consumers that otherwise lack access to the full range of potential lawyers and smaller or newer law firms that do not have the marketing resources or brand capital to attract the full range of potential clients. Consistent with the well-established economics of platform markets, these services operate under a two-sided model in which the unpriced delivery of attorney information to potential clients is financed by the positively priced delivery of interested clients to subscribing attorneys. Without this two-sided fee structure, the business model collapses and the transaction-cost barriers to matching the credentials of tens of thousands of lawyers with the preferences of millions of potential clients are inefficiently restored. Some legal matching platforms also offer fixed-fee service plans that can potentially reduce legal representation costs relative to the conventional billable hour model that can saddle clients with unexpectedly or inappropriately high legal fees given the difficulty in forecasting the required quantity of legal services ex ante and measuring the quality of legal services ex post.

Blocking entry by these new business models is likely to adversely impact competition and, as observed in a 2018 report by an Illinois bar committee, to injure lower-income consumers in particular. The result is inefficient, regressive, and apparently protectionist.

Indeed, subsequent developments in this litigation are regrettably consistent with the last possibility. After the California bar prevailed in its legal interpretation of “referral service” at the appellate court, and the Supreme Court of California declined to review the decision, LegalMatch then sought to register as a certified lawyer referral service with the bar. The bar responded by moving to secure a temporary restraining order against the continuing operation of the platform. In May 2020, a lower state court judge both denied the petition and expressed disappointment in the bar’s handling of the litigation.

Bar associations’ puzzling campaign against “LegalTech” innovation

This case of regulatory overdrive is hardly unique to the LegalMatch case. Bar associations have repeatedly acted to impede entry by innovators that deploy digital technologies to enhance legal services, which can drive down prices in a field that is known for meager innovation and rigid pricing. Puzzlingly from a consumer welfare perspective, the bar associations have taken actions that impede or preclude entry by online services that expand opportunities for lawyers, increase the information available to consumers, and, in certain cases, place a cap on maximum legal fees.

In 2017, New Jersey Supreme Court legal ethics committees, following an “inquiry” by the state bar association, prohibited lawyers from partnering with referral services and legal services plans offered by Avvo, LegalZoom, and RocketLawyer. In 2018, Avvo discontinued operations due in part to opposition from multiple state bar associations (often backed up by state courts).

In some cases, bar associations have issued advisory opinions that, given the risk of disciplinary action, can have an in terrorem effect equivalent to an outright prohibition. In 2018, the Indiana Supreme Court Disciplinary Commission issued a “nonbinding advisory” opinion stating that attorneys who pay “marketing fees” to online legal referral services or agree to fixed-fee arrangements with such services “risk violation of several Indiana [legal] ethics rules.”

State bar associations similarly sought to block the entry of LegalZoom, an online provider of standardized legal forms that can be more cost-efficient for “cookie-cutter” legal situations than the traditional legal services model based on bespoke document preparation. These disputes are protracted and costly: it took LegalZoom seven years to reach a settlement with the North Carolina State Bar that allowed it to continue operating in the state. In a case pending before the Florida Supreme Court, the Florida bar is seeking to shut down a smartphone application that enables drivers to contest traffic tickets at a fixed fee, a niche in which the traditional legal services model is likely to be cost-inefficient given the relatively modest amounts that are typically involved.

State bar associations, with supporting action or inaction by state courts and legislatures, have ventured well beyond the consumer protection rationale that is the only potentially publicly-interested justification for the bar’s licensing monopoly. The results sometimes border on absurdity. In 2006, the New Jersey bar issued an opinion precluding attorneys from stating in advertisements that they had appeared in an annual “Super Lawyers” ranking maintained by an independent third-party publication. In 2008, based on a 304-page report prepared by a “special master,” the bar’s ethics committee vacated the opinion but merely recommended further consideration taking into account “legitimate commercial speech activities.” In 2012, the New York legislature even changed the “unlicensed practice of law” from a misdemeanor to a felony, an enhancement proposed by . . . the New York bar (see here and here). 

In defending their actions against online referral services, the bar associations argue that these steps are necessary to defend the public’s interest in receiving legal advice free from any possible conflict of interest. This is a presumptively weak argument. The associations’ licensing and other requirements are inherently tainted throughout by a “meta” conflict of interest. Hence it is the bar that rightfully bears the burden in demonstrating that any such requirement imposes no more than a reasonably necessary impediment to competition. This is especially so given that each bar association often operates its own referral service.

The unrealized potential of North Carolina State Board of Dental Examiners v. FTC

Bar associations might nonetheless take the legal position that they have statutory or regulatory discretion to take these actions and therefore any antitrust scrutiny is inapposite. If that argument ever held water, that is clearly no longer the case.

In an undeservedly underapplied decision, North Carolina State Board of Dental Examiners v. FTC, the Supreme Court held definitively in 2015 that any action by a “non-sovereign” licensing entity is subject to antitrust scrutiny unless that action is “actively supervised” by, and represents a “clearly articulated” policy of, the state. The Court emphasized that the degree of scrutiny is highest for licensing bodies administered by constituencies in the licensed market—precisely the circumstances that characterize state bar associations.

The North Carolina decision is hardly an outlier. It followed a string of earlier cases in which the Court had extended antitrust scrutiny to a variety of “hard” rules and “soft” guidance that bar associations had issued and defended on putatively publicly-interested grounds of consumer protection or legal ethics.

At the Court, the bar’s arguments did not meet with success. The Court rejected any special antitrust exemption for a state bar association’s “advisory” minimum fee schedule (Goldfarb v. Virginia State Bar (1975)) and, in subsequent cases, similarly held that limitations by professional associations on advertising by members—another requirement to “protect” consumers—do not enjoy any special antitrust exemption. The latter set of cases addressed specifically both advertising restrictions on price and quality by a California dental association (California Dental Association v. FTC (1999) ) and blanket restrictions on advertising by a bar association (Bates v. State Bar of Arizona (1977 )). As suggested by the bar associations’ recent actions toward online lawyer referral services, the Court’s consistent antitrust decisions in this area appear to have had relatively limited impact in disciplining potentially protectionist actions by professional associations and licensing bodies, at least in the legal services market. 

A neglected question: Is the regulation of legal services anticompetitive?

The current economic situation poses a unique historical opportunity for bar associations to act proactively by enlisting independent legal and economic experts to review each component of the current licensing infrastructure and assess whether it passes the policy tradeoff between protecting consumers and enhancing competition. If not, any such component should be modified or eliminated to elicit competition that can leverage digital technologies and managerial innovations—often by exploiting the efficiencies of multi-sided platform models—that have been deployed in other industries to reduce prices and transaction costs. These modifications would expand access to legal services consistent with the bar’s mission and, unlike existing interventions to achieve this objective through government subsidies, would do so with a cost to the taxpayer of exactly zero dollars.

This reexamination exercise is arguably demanded by the line of precedent anchored in the Goldfarb and Bates decisions in 1975 and 1977, respectively, and culminating in the North Carolina Dental decision in 2015. This line of case law is firmly grounded in antitrust law’s underlying commitment to promote consumer welfare by deterring collective action that unjustifiably constrains the free operation of competitive forces. In May 2020, the California bar took a constructive if tentative step in this direction by reviving consideration of a “regulatory sandbox” to facilitate experimental partnerships between lawyers and non-lawyers in pioneering new legal services models. This follows somewhat more decisive action by the Utah Supreme Court, which in 2019 approved commencing a staged process that may modify regulation of the legal services market, including lifting or relaxing restrictions on referral fees and partnerships between lawyers and non-lawyers.

Neither the legal profession generally nor the antitrust bar in particular has allocated substantial attention to potentially anticompetitive elements in the manner in which the practice of law has long been regulated. Restrictions on legal referral services are only one of several practices that deserve a closer look under the policy principles and legal framework set forth most recently in North Carolina Dental and previously in California Dental. A few examples can illustrate this proposition. 

Currently limitations on partnerships between lawyers and non-lawyers constrain the ability to achieve economies of scale and scope in the delivery of legal services and preclude firms from offering efficient bundles of complementary legal and non-legal services. Under a more surgical regulatory regime, legal services could be efficiently bundled with related accounting and consulting services, subject to appropriately targeted precautions against conflicts of interest. Additionally, as other commentators have observed and as “legaltech” innovations demonstrate, software could be more widely deployed to provide “direct-to-consumer” products that deliver legal services at a far lower cost than the traditional one-on-one lawyer-client model, subject to appropriately targeted precautions that reflect informational asymmetries in individual and small-business legal markets.

In another example, the blanket requirement of seven years of undergraduate and legal education raises entry costs that are not clearly justified for all areas of legal practice, some of which could potentially be competently handled by practitioners with intermediate categories of legal training. These are just two out of many possibilities that could be constructively explored under a more antitrust-sensitive approach that takes seriously the lessons of North Carolina Dental and the competitive risks inherent to lawyer self-regulation of legal services markets. (An alternative and complementary policy approach would be to move certain areas of legal services regulation out of the hands of the legal profession entirely.)

Conclusion

The LegalMatch case is indicative of a largely unexploited frontier in the application of antitrust law and principles to the practice of law itself. While commentators have called attention to the antitrust concerns raised by the current regulatory regime in legal services markets, and the evolution of federal case law has increasingly reflected these concerns, there has been little practical action by state bar associations, the state judiciary or state legislatures. This might explain why the delivery of legal services has changed relatively little during the same period in which other industries have been transformed by digital technologies, often with favorable effects for consumers in the form of increased convenience and lower costs. There is strong reason to believe a rigorous and objective examination of current licensing and related limitations imposed by bar associations in legal services markets is likely to find that many purportedly “ethical” requirements, at least when applied broadly and without qualification, do much to inhibit competition and little to protect consumers. 

In Corporate & Securities Law, Legal Profession, Platforms, Regulation, Truth on the Market , , , , , ,
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Two Helpful Developments Aimed at Curbing Anticompetitive Protectionist Occupational Licensing Restrictions – Harbingers of Reform?

Alden Abbott —  27 July 2016

Background

Recently, an increasing amount of scholarship has focused on the excessive costs of occupational licensing, which too frequently serves merely as a protectionist state-created barrier to entry that arbitrarily prevents individuals (and, in particular, low-income individuals) from earning a living in their chosen field.  A 2015 White House report explains that occupational licensing restrictions have rapidly proliferated over the last six decades.  It notes that, while carefully crafted licensing schemes “can benefit consumers through higher quality services and improved health and safety standards”, too often licensing has been imposed without regard to its economic costs, in a manner that harms both workers and consumers:

Over the past several decades, the share of U.S. workers holding an occupational license has grown sharply.  When designed and implemented carefully, licensing can offer important health and safety protections to consumers, as well as benefits to workers. However, the current licensing regime in the United States also creates substantial costs, and often the requirements for obtaining a license are not in sync with the skills needed for the job. There is evidence that licensing requirements raise the price of goods and services, restrict employment opportunities, and make it more difficult for workers to take their skills across State lines. Too often, policymakers do not carefully weigh these costs and benefits when making decisions about whether or how to regulate a profession through licensing. In some cases, alternative forms of occupational regulation, such as State certification, may offer a better balance between consumer protections and flexibility for workers. . . .

[What’s worse,] [m]ore than one-quarter of U.S. workers now require a license to do their jobs, with most of these workers licensed by the States. The share of workers licensed at the State level has risen five-fold since the 1950s.  About two-thirds of this change stems from an increase in the number of professions that require a license, with the remaining growth coming from changing composition of the workforce. . . .

Research shows that by imposing additional requirements on people seeking to enter licensed professions, licensing can reduce total employment in the licensed professions.  Estimates find that unlicensed workers earn 10 to 15 percent lower wages than licensed workers with similar levels of education, training, and experience.  Licensing laws also lead to higher prices for goods and services, with research showing effects on prices of between 3 and 16 percent. Moreover, in a number of other studies, licensing did not increase the quality of goods and services, suggesting that consumers are sometimes paying higher prices without getting improved goods or services.

Articles by Heritage Foundation scholars have explored the public choice explanations for licensing schemes (see here for a fulsome treatment of this topic by Paul Larkin) and discussed possible constitutional (equal protection) and antitrust theories that might be deployed to challenge blatantly protectionist licensing schemes (for example, see here for a Legal Memorandum by Paul Larkin and me and see here for a law review commentary by me).

Lawsuits challenging purely protectionist occupational licensing restraints certainly merit being pursued.   Realistically, however, such suits can at best only slightly constrain harmful occupational licensing, given the costly, case-by-case nature of litigation and doctrinal limitations on the application of antitrust and constitutional theories.  The widespread repeal (or substantial reform) of harmful state occupational licensing laws is the ideal long-term solution to the problem, but political constraints (the self-interested coalitions representing occupational cartels may be expected to oppose such change) suggest that state legislative reform will move slowly in the near term.

There are, however, two very recent legislative developments that give cause for hope – the public release of the Allow Act and the Model Occupational Board Reform Act.  Properly publicized, they may become the focus of reform discussions and prove to be harbingers of future legislative initiatives aimed at reining in excessive licensing restraints.

The Allow Act

The Allow Act, co-sponsored by Senators Mike Lee (R-UT) and Ben Sasse (R-Neb) and introduced in the Senate on July 12 (they also participated in a program at Heritage that day discussing the issue), “would make it easier for many Americans to begin work in their chosen field by reducing unnecessary licensing burdens.”  The Allow Act has three principal features, summarized by Senator Lee:

The Alternatives to Licensing that Lower Obstacles to Work (ALLOW) Act reduces the anticompetitive impact of unjustifiable licensing requirements by making targeted changes to licensure policies.  The Act:

Serves as a model for reform in the states by limiting the creation of occupational license requirements in the District [of Columbia] only to those circumstances in which it is the least restrictive means of protecting the public health, safety or welfare, and makes it District policy to limit the enforcement of a license requirement only to the sale of those goods and services expressly listed in the statute or regulations defining an occupation’s “scope of practice.”  Promotes less restrictive requirements, such as public and private certification.  Provides for the creation of a dedicated office in the District Attorney General’s Office, or within each relevant District agency, responsible for the active supervision of occupational boards.  Provides for legislative oversight, with a “sunrise review” when considering new proposed licensing requirements to evaluate the possible negative impacts on workers and economic growth, along with possible less restrictive regulations. And provides legislative “sunset review,” which applies the same analysis of net benefits and possible alternatives to existing occupational licensing laws in the District, with the goal of reviewing all such laws and proposing appropriate modifications over a five year period.

Harmonizes occupational entry requirements by providing endorsement on military bases of occupational licenses and public certifications issued in any state in order to promote workforce attachment for military spouses who are disproportionately affected by the patchwork of state licensing laws as they move with their enlisted spouse from post-to-post.  This approach will increase workforce mobility and labor market efficiency.

Emphasizes certification as an alternative approach to licensure by eliminating the need to obtain prior government approvals to speak about our Nation’s military, political and cultural history while offering tour guide services for a fee within National Military Parks and Battlefields, or the National Mall and Memorial Parks.

The Model Occupational Board Reform Act

The Model Occupational Board Reform Act (Model Act), developed by the American Legislative Exchange Council, has four key features:

The State will use the least restrictive regulation necessary to protect consumers from present, significant and substantiated harms that threaten public health and safety.

An occupational regulation may be enforced against an individual only to the extent the individual sells goods and services that are included explicitly in the statute that defines the occupation’s scope of practice.

The attorney general will establish an office of supervision of occupational boards. The office is responsible for actively supervising state occupational boards.

The legislature will establish a position in its nonpartisan research staff to analyze occupational regulations. The position is responsible for reviewing legislation and laws related to occupational regulations.

In short, the Model Act enlists state attorney generals’ offices (which typically also enforce state antitrust laws and have some familiarity with justifications for promoting competition) in actively supervising state occupation licensing boards.  This is in harmony with the Supreme Court’s 2015 North Carolina Dental Board decision, which upheld antitrust scrutiny of boards that are not actively supervised.  The Model Act also places an onus on state regulators to curb the breadth of the application of licensing rules, and to specially scrutinize new laws that affect occupational licensing.  Overall, then, the Model Act takes constructive steps to limit the scope of harmful occupational licensing restrictions, in a manner that may prove politically more feasible than wholesale statutory repeal.  (Another hopeful sign is the recent introduction of various types of occupational reform proposals in various states.)

Conclusion

Although the plague of proliferating harmful protectionist occupational licensing restrictions is still with us, we may be approaching a turning point.  Recent scholarship on the substantial harm of such restraints, and, in particular, their burden on lower income Americans seeking employment, has come to the attention of policymakers.  As a result, legislative efforts to curb the overregulation of occupational licensing are being developed and are receiving public attention.  Although we are far from winning the war on welfare-inimical occupational licensing, perhaps this is “the end of the beginning” of the public policy struggle.

In Antitrust & Competition, Cartels
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