Title

Occupational Licensing in a 'Competitive' Labor Market: The Case of Cosmetology

Department

Economics, Finance, & Quantitative Analysis

Document Type

Article

Publication Date

Spring 2002

Abstract

A straightforward model of supply and demand is developed to analyze the regulation of a "competitive" industry - cosmetology - with demand shifts representing an enhancement of "quality" and supply shifts representing restricted entry. Reduced-form models are established to estimate both price and quantity shifts, adjusted for the joint determination of cosmetological prices, quantities, and state regulations. Our results reveal a significant net decrease in quantity from the imposition of state occupational regulation in the cosmetology market. Rents to cosmetologists would be on the order of $1.7 billion per year with deadweight losses totaling an additional $111 million per annum under reasonable and conservative assumptions.