Occupational licensing

Occupational licensing, also called occupational licensure, is a form of government regulation requiring a license to pursue a particular profession or vocation for compensation. It is related to occupational closure. Professions that can have a large negative effect on individuals, like physicians, public accountants, and lawyers, require occupational licenses in most developed countries, but many jurisdictions also require licenses for professions without that possibility, like plumbers, taxi drivers, and electricians. Licensing creates a regulatory barrier to entry into licensed occupations, and this results in higher income for those with licenses and usually higher costs for consumers.

Licensing advocates argue that it protects the public interest by keeping incompetent and unscrupulous individuals from working with the public. However, there is little evidence that it affects the overall quality of services provided to customers by members of the regulated occupation.^[1] A 1983 study found that some occupational licensing schemes tended to exclude minorities and disadvantaged populations from entering such trades.^[2] However, a more recent study from 2009 found the opposite.^[3]

History

Traditionally, occupations in the crafts professions and in the liberal professions organize their respective industries in guilds and chambers in European countries like Germany and Austria. One of the most important changes in licensing has been the 2004 reform in Germany, where workers in 53 of 94 crafts professions were not required to be licensed anymore in order to start a business.^[4] In 2020, 12 of these deregulated professions reinstated the licensing requirement.

Comparison of Unions and Licensing over Time in the United States. (The dashed line shows the value from state estimates of licensing based on the Gallup Survey and PDII Survey results. The union membership estimates are from the Current Population Survey (CPS)).

In the United States, licensing has been among the fastest-growing labor market institutions. The figure shows the growth of occupational licensing relative to the decline of union membership since the 1950s.

By 2008 occupational licensing in the U.S. had grown to 29 percent of the workforce, up from below five percent in the 1950s.^[5] In contrast, unions represented as much as 33 percent of the U.S. workforce in the 1950s, but declined to less than 12 percent of the U.S. workforce by 2008.

Economic effects

One simple theory of occupational licensing envisions a costless supply of unbiased, capable gatekeepers, and enforcers. The gatekeepers screen entrants to the occupation, barring those whose skills or character suggest a tendency toward low-quality output. The enforcers monitor incumbents and discipline those whose performance is below standard with punishments that may include revocation of the license needed to practise. Assuming that entry and performance are controlled in these ways, the quality of service in the profession will almost automatically be maintained at or above standards that are set by the gatekeeper to the profession. Within this approach, only those who have the funds to invest in training and the ability to do the work are able to enter the occupation.

Introducing economics to this otherwise mechanical model by noting that a key discipline on incumbents—the threat of revoking one's license—may not mean much if incumbents can easily re-enter the profession, such as by moving to a new firm, or by shifting to an alternative occupation with little loss of income. Since grandfathering (i.e., allowing current workers to bypass the new requirements) is the norm when occupations seek to become licensed, incumbent workers are usually supportive of the regulation process. In the absence of grandfathering, lower-skilled workers in the occupation may have to seek alternative employment. For example, if sales skills are the key to both providing licensed sales of heart monitors and the non-licensed selling of shoes or cars, then individuals may shift between these lines of work with little loss of income.

이러한 상황에서 면허소지자에 대한 의미있는 규율은 면허상실이 유의적인 재정적 손실을 수반한다는 것을 보장하기 위한 의도적인 단계를 요구할 수 있다. 이와 같은 추가 조치에는 벌금 부과, 퇴사 실무자의 재입사를 방지하기 위한 심사 개선 또는 면허 상실 시 몰수되는 자본금을 모든 재직자에게 의무화하는 것이 포함될 수 있다. 기존 사업자가 소득 손실이 적은 다른 직종으로 전환할 수 있는 가능성을 상쇄하기 위해, 허가받은 직종 내에서 공급을 제한하고 독점 임대료를 창출하도록 진입 요건을 강화할 수 있다. 이러한 독점 임대료 손실 위협은 원칙적으로 기존 사업자에게 품질 기준을 유지하기 위한 인센티브를 제공할 수 있다. 이것은 또한 추가 요건을 달성하기 위해 인적 자본 투자가 어느 정도 증가하게 할 수도 있다. 임대료는 또한 입학 허가를 얻기 위해 잠재 입학자들이 높은 수준의 교육에 투자하도록 동기를 부여할 수 있다. 이는 인허가제가 공급을 제한하고, 노동임금을 인상하며, 생산물가를 인상함으로써 산업 내 품질을 높일 수 있음을 시사한다. 물가 상승은 인식되거나 실제적인 기술 향상 또는 규제 대상 근로자의 공급 제한으로 인해 품질 향상을 신호로 삼을 수 있다.

국가가 규제하는 직종은 정치기관을 이용해 공급을 제한하고 면허를 가진 실무자들의 임금을 인상할 수 있다. 새로 제정된 기준을 충족하지 않아도 되는 현재의 직업 구성원에게 발생하는 일회성, 일체의 소득 이득이 있다고 가정한다. 일반적으로, "할아버지"인 근로자들은 새로운 입사자들의 기준을 결코 충족시킬 필요가 없다. 앞으로 직업에 진출하려는 개인은 그 분야의 독점력 증가의 경제적 임대료와 입학 요건을 충족시키기 위한 더 큰 어려움과의 균형을 맞출 필요가 있을 것이다.

일단 직종이 규제되면, 지리적 또는 정치적 관할권에 있는 그 직종의 구성원은 더 엄격한 법령이나 시험 합격률을 시행할 수 있고, 노동력 공급을 더욱 제한하고 재직자의 경제적 임대료를 획득함으로써 요건이 쉬운 직종에 비해 이득을 얻을 수 있다. 제한사항에는 면허시험 합격률 제고, 일반적이고 구체적인 요건 강화, 면허자격 제한에 따른 거주자격 강화 등이 포함된다. 더구나 직업교육을 마친 개인은 경제적, 수치심적 비용이 모두 높을 수 있기 때문에 합격률이 낮은 특정 정치관할구역에 가지 않기로 결정할 수도 있다.

A 2017 analysis found that occupational licensing in different American states reduced between-state migration of individuals in professions with divergent licensing by 36 percent relative to members of other occupations, while workers in nationally licensed occupations showed no evidence of reduced interstate migration.^[6] A 2020 follow up study by the same authors found that "the magnitude of the effect can only account for a small part of the overall decline in [interstate migration] seen in recent decades."^[7]

In April 2019, Arizona became the first US state to recognize out-of-state occupational licenses.^[8][9]

Evidence on the effects of occupational licensing

It is well understood that occupational licensing can serve as a barrier to occupational entry resulting in reduced employment, monopoly rents for workers in the occupation, and higher prices for consumers (Friedman, 1962).^[10]

Kleiner and Krueger (2010 and 2013)^[11][12] show that after controlling for education, labor market experience, occupation, and other controls, licensing is associated with a 15 to 18 percent wage premium in the labor market. This estimate may partially reflect a premium for higher unmeasured human capital, but it is also consistent and likely in large part due to rents.

The empirical work on the effects of licensing on employment levels or growth rates, but the existing estimates suggest that they could be large. Kleiner (2006)^[13] examined employment growth rates in states and occupations with stronger versus weaker occupational licensing requirements. Specifically, he compares employment growth between 1990 and 2000 of occupations that are licensed in some states to the same occupations that are not licensed in other states. In order to account for differential growth rates between states, he also compared the growth rate of occupations that are either fully licensed or fully unlicensed in both sets of states.^[14] Using a "difference-in-difference" regression analysis, Kleiner found that partially licensed occupations had a 20 percent lower growth rate in states with licensing relative to states without licensing and relative to the difference in growth rates between these sets of states of fully licensed and fully unlicensed occupations. This estimate implies that a licensed occupation that grew at a 10 percent rate between 1990 and 2000 would have grown at a 12 percent rate if it were unregulated.^[15]

With occupational licensing varying by state, another channel through which licensing can affect employment is through reduced mobility. The patchwork of regulations raises the cost of cross-state mobility for workers in these occupations. This will result in slower adjustment costs to regional economic shocks which can result in higher unemployment.

Because it restricts employment, licensing can also lead to higher prices for services faced by consumers. This has been documented in a number of studies including Shepard (1978),^[16] Bond, et al. (1980)^[17] Cox and Foster (1990),^[18] and Kleiner and Todd (2009).^[19]

While it is not possible to precisely estimate the effects of substantially reducing occupational licensing at the present time, both theory and the available evidence suggest that such a reduction could translate into significantly higher employment, better job matches, and improved customer satisfaction. Low-income consumers, in particular, would benefit because reduced barriers to entry would reduce the prices of services provided (Shapiro, 1986^[20] and Cox and Foster, 1990^[21]). For Germany, a study exploits the deregulation of occupational licenses called Meister for 53 occupations in 2004 as a natural experiment. It finds that this policy change increased the propensity to work as self-employed substantially.^[4]

Without doing a detailed analysis at the occupation-by-occupation and state level, economists cannot say which occupations can be justified based on quality-consideration, though studies have been conducted they have found at least in a number of cases at different stages of licensing reduces employment, but does not result in better services (Kleiner, 2013).^[22] For example, Kleiner and Kudrle (2000)^[23] find that occupational licensing of dentists does not lead to improved measured dental outcomes of patients, but is associated with higher prices of certain services, likely because there are fewer dentists.^[24][25]

A study from the Mercatus Center showed that occupational licensing can lead to greater income inequality, with each step needed to open a business leading to an additional 1.4% of national income going to the top 10% of earners.^[26][27]

A 2019 NBER paper found that occupational licensing contributed to an average welfare loss of 12 percent.^[28]

In the case of midwifery, the introduction of occupation licensing led to substantial reductions in maternal mortality.^[29]

Alternatives

Government regulation

To distinguish various forms of regulation, there are three forms of government regulation of occupations:

• Licensing: Licensing refers to situations in which it is unlawful to carry out a specified range of activities for pay without first having obtained a license. This confirms that the license holder meets prescribed standards of competence. Workers who require such licenses to practice include doctors, lawyers, nurses, civil engineers, and surveyors.
• State Certification: is generally necessary in order to obtain a license to practice an occupation. The certification requirements include passing of a standardized, state-administered test and proof of minimum experience working under the supervision of a licensed practitioner. New entrants to the occupation can start working as trainees such as "apprentice electrician". Some workers in an occupation may never get certified and licensed but can continue working under the supervision of a licensed person indefinitely.
• Registration: Registration refers to situations in which one can register one's name and address and qualifications with the appropriate regulatory body. Registration provides a standard for being on the list, but complaints from consumers or improper listing of credentials can result in removal from the list.

Professional certification

In contrast to government regulation, voluntary professional certification can be used to demonstrate competence without the harmful economic effects of legalized occupational barriers. Examples of professional associations and trade associations that provide voluntary professional certification in various fields include:

• National Institute for Automotive Service Excellence
• CompTIA
• (ISC)²
• Project Management Institute
• American Meteorological Society

See also

• Employment protection legislation
• Labor economics
• Labour market flexibility
• Law and economics
• Loss aversion
• Professional certification
• Regulatory capture
• Regulatory state
• Rent-seeking

References

Further reading

• Friedman, Milton (1962). "Occupational Licensure". Capitalism and Freedom. ISBN 978-0226264219.
• Kleiner, Morris M. (2006). "Introduction and Overview". Licensing Occupations: Ensuring Quality or Restricting Competition?. doi:10.17848/9781429454865. ISBN 978-0-88099-284-8.
• Kleiner, Morris M. (2013). "Introduction and Overview". Stages of Occupational Regulation: Analysis of Case Studies. doi:10.17848/9780880994613. ISBN 978-0-88099-459-0.
• Kleiner, Morris M. (2015). "Anatomy of Occupational Licensing". Guild-Ridden Labor Markets: The Curious Case of Occupational Licensing. doi:10.17848/9780880995023. ISBN 978-0-88099-501-6.

External links

• Young, S. David (2002). "Occupational Licensing". The Concise Encyclopedia of Economics. The Library of Economics and Liberty.
• Reinhardt, Uwe E. (October 11, 2013). "The Dubious Case for Professional Licensing". The New York Times.
• Stangler, Dane (April 2, 2012). "Occupational Licensing: How A New Guild Mentality Thwarts Innovation". Progressive Policy Institute.
• de Rugy, Veronique (March 25, 2014). "Occupational Licensing: Bad for Competition, Bad for Low-Income Workers". The Mercatus Center at George Mason University.