Slovakia Regulates Too Many Professions for Its Own Good
In comparison with other European countries, Slovakia regulates entry into a relatively large number of professions. Regulated professions require the provider of services to meet certain qualification criteria. These criteria usually involve some minimum education or experience requirements, or the obligation to join a professional association.
One example is the requirement that medical doctors have university-level credentials in their discipline, or the internship requirement that law graduates have to complete before they become full-fledged attorneys. Other qualification criteria include certifications from special training courses that the law requires, for instance, tour guides to possess.
Slovakia Among the Heaviest Regulators
According to data from the European Commission’s database of regulated professions, Slovakia regulates as many as 311 professions. By comparison, the median number of regulated professions in the 32 countries of the European Union and the European Free Trade Association is only 160. We thus find ourselves in a rather unflattering fourth place in the ranking of Europe’s heaviest regulators. Only three countries regulate more professions, and they all, incidentally, happen to be our partners from the Visegrad Four: Hungary (408 regulated professions), the Czech Republic (398) and Poland (347). On the other end of the regulatory spectrum are countries that regulate the lowest number of professions — Lithuania (72 regulated professions), Sweden (88) and Estonia (97). In these countries, the qualification restrictions usually apply to professions in health care and social services.
Regulation as Consumer Protection
The most common justification for the regulation of entry into particular professions is the effort to protect the consumer. A worker who does not possess the expertise necessary to do his or her job well may harm the customer by providing a low-quality service. Occupational licensing therefore makes most sense in cases where a poorly done job could cause serious and irreversible harm to the consumer and in cases where it is difficult to determine the expertise and experience of the provider ahead of time.
As a result, occupational licensing is perhaps most clearly justified in the case of health care professions. A low-quality health care intervention can often have irreversibly negative consequences. The success (or otherwise) of a medical procedure, furthermore, often does not become apparent until several months or even years have passed. It is also frequently difficult to unambiguously attribute the worsening of someone’s health to any particular medical intervention. It should come as no surprise, then, that the entry into medical professions is regulated even in countries that otherwise regulate very few professions.
Regulation as Protection from Competition
Occupation licensing can, however, be a double-edged sword. The requirement of qualification criteria often acts as a barrier to entry. Instead of protecting the consumer and ensuring the delivery of high-quality services, occupation licensing often serves primarily to shield existing providers from potential competition.
As a result, consumer prices are often higher than those that would have prevailed on an unregulated market. Another consequence of overly stringent regulation and the attendant lack of competition tends to be the low quality of provided services, as dissatisfied customers do not have the option of procuring the services from another supplier.
And even if there remained enough competition after a profession has been regulated, many individuals would be likely to provide their services off the books, without paying taxes. Overbearing regulation could thus push providers into the informal economy, and would have a negative impact on the government budget.
Finding the Right Balance
If legislators and regulators care about the overall welfare of society, one of their most important tasks will be to weigh the benefits and costs of regulating individual professions, and to correctly determine the proper scope for such regulation.
If the low-quality delivery of a service can have a permanently negative impact on the consumer and if it is difficult to ascertain the provider’s expertise ex ante, relatively stringent occupational licensing might be appropriate. In most other cases, we should instead considering relaxing the qualification criteria somewhat.
The fact that Slovakia regulated substantially more professions than most other European countries suggest that there is scope for deregulation. In many occupations, such as in cosmetic services, the quality of service delivery can be guaranteed through other means — for instance, through relying on the provider’s incentive to maintain a good reputation. In some cases, we regulate professions that are particularly attractive for Slovakia who have experience from abroad — such as translation and interpretation services, or the teaching of foreign languages.
More competition would lead to a decrease in consumer prices and an increase in the quality of services. In addition, it would also open up new employment opportunities for enterprising individuals and, despite a lesser role for the state, would also increase government revenues.
Marek Hlavac is a Ph.D. candidate in Political Economy and Government at Harvard University.