Patrick El-Hage

License to Trim - An Analysis of Hair Styling Licensing Regulation

November 12, 2013

Patrick El-Hage & Gaurav Mehra

Economics 2138F

Professor Chung

License to Trim: An Analysis of Hair Styling Licensing Regulation

Introduction

Ontario barbers are pulling their hair out at the prospects of having to comply with licensing regulations that they find irrelevant to their trade. Led by premier Kathleen Wynne, the Ontario Liberals proposed legislation that would mandate all hairstylists to attend classes in order to be certified to work. The classes encompass many aspects of hairstyling including but not limited to dyeing, weaving and perming. The issue is that this legislation targets all professionals who cut hair, including barbers. However, barbers specialize in cutting men’s hair, and as such, there is no need for them to attend classes to become licensed in areas of service that they do not practice. As a result many barbers are outraged and strongly oppose this legislation, as they would have to pay a large portion of their income to comply. If they do not receive certification they will be fined gradually increasing monetary fines. To garner a better understanding of this issue, it is important to understand the historical context out which this issue arose.

In an effort to streamline regulatory work in 1998, the Ministry of Training, Colleges and Universities, merged all hairstyling related fields (including barbers) into one trade group named ‘hairstylists’ (Group #6271). To maintain a valid working license, individuals working under this group are required to attend mandatory hair styling classes (the content of which was discussed earlier). These requirements were rarely enforced which is why many individuals (especially those who had no need for the skills taught in the classes; such as barbers) chose not take the classes.

However, in 2009 “The Ontario Liberal Trades and Apprenticeship Act” was introduced into the legislature by the liberal government, which transferred the enforcement (amongst other powers) of various regulatory requirements to a new body named the “Ontario College of Trade (OCOT)“. OCOT has been increasingly enforcing licensing requirements, going after individuals that do not have the appropriate regulatory perquisites of which barbers have become a key focus.

Analysis

The analysis of the particular problem at hand will be twofold. The first part will focus on the normative aspect of the underlying policy while the second will focus on the positive aspect of the issue at hand.

Normative Analysis

As mentioned earlier, the normative aspect of our analysis will look at the fundamental policy underlying the issue, which is the policy of government licensing. Why does the government require an individual to be licensed in a particular field of service in the first place? Although this is a very broad question it can be simplified when we consider market failures. There are different types of market failures, and the one that governmental licensing attempts to deal with is information asymmetry. In order to understand how governmental licensing reduces information asymmetry, it is imperative that the definition of information asymmetry itself is understood. Simply put, information asymmetry arises when one party has better information than the other. For example, consumers do not truly know the quality of services/goods that will be provided to them when engaging in an economic transaction; they must use whatever knowledge at hand to form expectations of the degree of quality they will receive, and accordingly, they subjectively judge if this expected quality is worth the price they are paying for it.

On the other hand, the individual/organization providing the service knows exactly what the degree of quality that they are providing is. Herein lies the apparent market asymmetry. Licensing helps to reduce this information asymmetry for the consumer by providing a baseline assurance that an individual/organization is qualified to provide a specific product/service in regards to predetermined criteria decided upon by the government. The actual criteria itself varies depending on the industry in question. With this increased knowledge about the individual/organization the consumer is that much more informed thus information asymmetry is reduced. However, this decrease in information symmetry is not only to the benefit of the consumers, properly licensed businesses benefit as well. The individuals/organizations that provide the goods/services to consumers are now able to inform the consumers that they in fact meet the baseline criteria set forth by the government. In a sense, through licensing businesses are now able to showcase their credentials to consumers (at a cost, however). In the end information symmetry is decreased, but is this alone enough to justify the policy? Especially when there are already more cost-effective market-based methods of reducing information asymmetry such as customer review websites like Yelp and other websites on the Internet?

Positive Analysis

Costs of Policy

In order to obtain the licensing that provides absolutely no benefit to barbers or their customers, it would cost an approximate $5500 to enroll in the course plus 1500 hours of their time in the classroom. Conservatively assuming that the next best alternative for these barbers is to work a full-time minimum-wage job earning $10.25/hr, the opportunity cost of schooling would amount to $15,375. Therefore, the cost to obtain a license for barbers is $20,875.

This cost to barbers is a significant barrier to entry into the hairstyling business and should expect a decrease in the supply of hairstylists and barbers. As a result, the overall industry, specifically barbershops, would be less competitive. It is plausible that less competition could lead to a decrease in quality of service for consumers as well. Lastly, for consumers, licensing that leads to a decrease in the supply of hairstylists and barbers would anticipate an unknown rise in prices.

Interests of The Ontario College of Trades

Some of the goals of The Ontario College of Trades may be in the interest of protecting consumers and those who currently have licenses, but it is certainly not in the best interest of those who are looking for a hairstyling or trades job due to its costs. Although the Ontario College of Trades has a near $5 million dollar operating grant by the government, it is self-financing body that must use its revenues from members to support its expenses.

The “budget-maximizing model” is an important and influential concept in public choice theory and rational choice analysis. It argues that rational bureaucrats will always seek to increase their budgets in order to increase their own power, which leads to departmental growth and potentially reduces social efficiency. In this model, the Ontario College of Trades would equate its average costs and benefits rather than its marginal costs and benefits.

Not only would resources be allocated inefficiently if the behavior of the Ontario College of Trades was consistent with the budget-maximizing model, in order to increase its revenue OCOT would either have to increase its membership fees or use its influence to increase the number of trades that are required to be licensed. If OCOT increases the number of trades, it would certainly negatively impact employment opportunities and could even cost taxpayers money due to an increase in prices of their goods. In the case of barbers, this would not be in their best interest or the public’s.

Many members of the Ontario College of Trades question the intentions of the regulatory body. For example, the director of the Labourer’s International Union of North America stated in an interview, “Rather than giving us a stronger voice on regulatory changes affecting the construction industry, we fear that the college is becoming an added layer of bureaucracy that no longer accurately represents the skilled trades in Ontario, as it was supposed to do.”

The organization is bureaucratic in the sense that many of its officials are unelected by the members they represent as well. Doug Leitch, head of the Ontario Contracter and Small Business Association summarized OCOT in the clearest way, “The OCOT governing structure includes up to 98 appointed board members, enforcement officers, and a multitude of administrative staff. OCOT’s operating budget was not approved by the membership, its fees were not set by the membership, and not a single board member has been elected by the membership. It simply continues [the policy] of government appointments and skewed over-representation from special interest groups.”

All these factors question the interests of the Ontario College of Trade, and it would be unsurprising if more trades are forced to have a membership in order to work. This all leads to the ultimate question: is the Ontario College of Trades necessary, more specifically the current legislation that targets hair stylists and barbers?

Conclusion

The whole notion of mandatory licensing is suspect. Not only are the benefits minimal, but the costs are also high. Based on our analysis we propose two policies, one that can be implemented immediately and is geared towards the issue at hand, and the second, which is requires long-term implementation and deals with the fundamental policy issue.

Policy Suggestion #1 - Create a separate labour category for barbers

Our immediate policy suggestion would follow along the lines of what the OTC is considering of doing. We suggest taking barbers out of the labour group titled ‘Hairstylists’ and creating a separate category. This way, barbers will not have to comply with the relatively arbitrary and useless requirements to maintain a valid license.

Policy Suggestion #2 - Optional Licensing

As shown in our analysis, the costs of licensing for the most part, far outweigh the benefits. As such, our policy suggestion for the long run is to make licensing for all trades optional. Businesses who feel that getting licensed will provide them with an edge over their competitors will be able to get one (so long as they meet the requirements), and businesses who see no such advantage will retain the option to not pursue licensing without the fear of getting fined.

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Patrick El-Hage

I'm Patrick El-Hage and I live and work in San Francisco. I'm also on Twitter.