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Do we need occupational licensing?
Alan Krueger writes:
In a new book, "Licensing Occupations: Ensuring Quality or Restricting Competition?" (Upjohn Institute, 2006), Morris M. Kleiner, an economist at the University of Minnesota, questions whether occupational licensing has gone too far. He provides much evidence that the balance of occupational licensing has shifted away from protecting consumers and toward limiting the supply of workers in various professions. A result is that services provided by licensed workers are more expensive than necessary and that quality is not noticeably affected.
Read more here. I can't yet find this listed on Amazon.com, any pointers? Here is a pdf of part of the book. Here is a home page for the book.
Posted by Tyler Cowen on March 2, 2006 at 08:31 AM in Law | Permalink
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Comments
Seems quite reasonable. It is necessary to protect customers from various quacks somehow, and licensing is one way; but I'm ok wit h the market determining the supply of quality services. Licensing may be even non-governmental, e.g. Forest Stewardship Council, but it must be trustworthy or its primary purpose is undermined. It seems that heavily institutionalized licensing systems tend to degrade in this way, with the license becoming a purely bureaucratic piece of paper and a barrier to competition, and on top of that failing to ensure quality.
Posted by: A Tykhyy at Mar 2, 2006 9:19:41 AM
Licensing also has a third component, revenue.
For example, in Chicago, all developers must get a license for each separate LLC that they work under (usually atleast one per deal). This costs $125.00, a fee that is nominal to even the smallest developer, but good for the city in the aggregate. Also, the city uses the information it collects on the LLC owners to search for traffic ticket scofflaws, dead-beat parents, warrants, etc.
The only part of the process the comes remotely close to 'qualifications' for development is a check by the zoning department to see if zoning is correct...For the developer's place of business, NOT the actual property. So essentially they make sure that the listed business address is zoned for office work.
Working in this business I'd be happy if they doubled the fee (or even more) if they canned the paper work.
Posted by: ElamBend at Mar 2, 2006 9:21:17 AM
Also, the Bar passage rate in many states is set by the State Bar arbitrarily, after the test. It is essentially a decision taken as to how many people will be allowed to pass.
Just like any guild, the Bar has an interest in limiting the competition (which is at odds with law schools which want as many paying students as possible).
Posted by: ElamBend at Mar 2, 2006 9:23:40 AM
In every occupation there should be a distribution of performance. If there has been recent trend is "toward limiting the supply of workers in various professions" and as a consequence there is no rise in quality for it, then there must be little performance based discrimination in determining which potential worker gets the licence and which doesn't. Is affirmative action potentially a contributing factor?
Posted by: scottynx at Mar 2, 2006 9:46:13 AM
"Just like any guild, the Bar has an interest in limiting the competition (which is at odds with law schools which want as many paying students as possible)."
And it's clear that the law schools have won out, with there being a glut of lawyers in most areas.
Posted by: Peter at Mar 2, 2006 9:58:44 AM
Re: "Licensing also has a third component, revenue."
Given what you describe, the nominal fee and the use of the information, this might actually be efficient-- if the fee is close to the cost of enforcement, it may just be a way of having developers internalize the external costs of necessary oversight related to their work.
I don't think that's the sort of licensing of occupations Mr. Kleiner is discussing in his book, though.
Posted by: Matthew McCormick at Mar 2, 2006 10:17:24 AM
What is truly amazing is that there are still plenty of people around who believe that occupational licensing has something to do with anything but monopoly and protectionism!
Posted by: Boris Lvin at Mar 2, 2006 10:41:56 AM
I second Boris's point. Didn't Adam Smith have something to say about members of a trade congregating? Have we learned nothing new sinced 1776?
Posted by: TomHynes at Mar 2, 2006 12:25:40 PM
The now widespread 150-credit-hour requirement to sit for the CPA exam has had two consequences--a dramatic decline in the number of people taking the CPA exam and a less dramatic increase in pass rates. Two articles in the most recent Journal of Labor Research address these developments.
Posted by: Donald A. Coffin at Mar 2, 2006 12:27:48 PM
In no way does the bar exam have much to do with the actual practice of law in a state, and I should know because I took two of them, yet in order for a lawyer to move from one state to another, he must pass the grueling hurdle of passing the bar exam (because he probably forgot everything he studied for the last time he took it in a different state).
Yet there is a big glut of lawyers anyway. If you can't get into a top 14 law school, there's no point in going.
Posted by: Half Sigma at Mar 2, 2006 1:43:24 PM
This a huge topic. I'm not anti-licensing but I'm against overly restrictive licensing and regulations that limit competition and raises consumer costs. Surely governments should be limited to doing this in cases where their interests in protecting consumers are legitimate, because someone might die, be maimed, be poisoned, be defrauded of large sums of money, etc,
And don't forget that licensing sometimes arises privately, in response to a public perception that a profession's practitioners mighe be unsavory. Financial planners have a non-governmental certification organization, for example. But do we really need a state to, say, license hairdressers, barbers, etc? Or landscapers? the latter need only be licensed or certified, to say, use certain types of equipment. Or in some cases better yet, simply be required to carry insurance that protects their customers from their mess-ups.
The part of this that's really vexing is that many of the older and more established guild-style professions have enough power to protect their domain (I call it their jolly roger zone, where they have run up their black flag and declared sovereignty) from the sort of reasonable cherry picking of their easier and less dangerous but still lucrative tasks. In most places, you're technically breaking the law if you say replace a light switch or something. Here in MA, it's a law that only police officers may direct traffic around dangerous private construction work, and that they have to be paid double time for a 4 hour minimum. That's right: give or take a $160 minimum paycheck to stop cars while a backhoe digs a trench for a sewer hook up.
Posted by: bk at Mar 2, 2006 3:47:36 PM
Dean Baker has often said that free trade has to go both ways: if we are going to have open borders for products on the lower end of the scale, we should have it for services at the higher end, more or less. In other words, doctors should be as susceptible to displacement as manufacturing workers (or so that's my characterization). And that seems completely fair.
I can't imagine it would make all of the difference in lowering health care costs,ut I believe it would be a step in the right direction.
Oh yeah, remind me: was it here I read the story about, years ago, $400 million being paid out in New York to limit the supply of doctors?
Posted by: Brian at Mar 2, 2006 3:48:40 PM
Not amazing at all Boris. Adam Smith and Johnathon Swift mocked and criticized ocupational licensing, but the economic consensus among intelligent lay-people hasn't really changed much between their day and ours.
Posted by: Michael Vassar at Mar 2, 2006 4:15:00 PM
I've been thinking a lot about this issue lately. For me, this is exactly like FDA permissions - hence, I don't agree with it.
It would be way better if instead of licences, certificates were given, for the sake of signaling.
Here in Brazil, for instance, "consensual divorce" is a very simple judicial procedure, but demands a lawyer anyway, which have minimum prices fixed by the BAR, by the way. I have no doubt this increases the costs of divorcing (some will argue this is a good thing).
Posted by: Daniel Strauss Vasques at Mar 2, 2006 6:16:09 PM
I've been thinking a lot about this issue lately. For me, this is exactly like FDA permissions - hence, I don't agree with it.
It would be way better if instead of licences, certificates were given, for the sake of signaling.
Here in Brazil, for instance, "consensual divorce" is a very simple judicial procedure, but demands a lawyer anyway, which have minimum prices fixed by the BAR, by the way. I have no doubt this increases the costs of divorcing (some will argue this is a good thing).
Posted by: Daniel Strauss Vasques at Mar 2, 2006 6:16:58 PM
I have an unusual occupation and there aren't many of us. I'm a pattern maker for apparel and sewn products. Industrial pattern makers don't collect enviable revenues rather, it's the opposite. There are hacks who prey on start up manufacturers and they charge 10 times the going rate (you want evidence, no problem).
Very often over the past ten years, people have suggested I start a movement to licence the occupation, and so, prevent customer abuses (it's not likely to happen tho, pattern makers tend not to be joiners, hell, we rarely even advertise). However, I can assure you, there are legitimate reasons to license occupations rather than revenue. I know that may be true of many situations but it's not true of all of them. It takes a long time to become skilled; people won't suddenly become pattern makers for the money. It's not as though you can do a week end seminar, a semester or even a couple years of school to be qualified. It's closer to the time period of medical school and internship to be qualified. The ratio of investment in learning the trade compared to the financial return just isn't there. You don't do this for the money, that's for sure. So, there's no monopoly and the only protectionism going on is to save manufacturers from 90% overcharges from unqualified hacks.
Posted by: Kathleen Fasanella at Mar 2, 2006 6:53:39 PM
I actually read the section of the book you linked to. He has a table that shows employment growth and wage growth for the seven occupations that account for the bulk
of licenced jobs. Three of those professions, accountants, doctors and lawyers had both employment growth and wage growth much stronger then the national average. But the very strong growth in employment in these occupations certainly did not imply that licencing restricted the supply. Two occupations were elementary and high school teachers. Both has below average employment growth and wage growth. So this is in direct opposition to the conclusion he reached. Two had essentialy no employment growth -- dentists and hairdressers. Dentists wages soared while hairdressers wages rose modestly less then average. So out of this sample of seven occupations in the table only one seemed to support his thesis.
But if this table of seven cases only had one example that supported his thesis, what is in the rest of the book that goes against the evidence in this table?
Posted by: spencer at Mar 3, 2006 9:14:09 AM
Kathleen's comment is a classic. Replace "pattern maker" with almost any profession:
1. We aren't doing it for us, just to protect the public from unscrupulous practicioners who "prey" on the little guy.
2. We are highly trained and don't get paid what we should.
Posted by: TomHynes at Mar 3, 2006 1:39:17 PM
Industries and trade groups should be free to limit the labor supply as much as they want, but they should not be able to use the force of government to do so.
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Posted by: gytuk at Sep 14, 2006 1:53:06 AM
Foreign educated psychologists who attempt to obtain a license to practice psychology in the US are faced with an unpleasant reality:
US psychology-regulating authorities do not recognize the validity of the usual qualifications required to obtain a license to practice psychology in countries which do not have a US school system. This differs from the situation for foreign-trained lawyers and medical practitioners.
American State laws pertaining to psychology regulation are now unanimous in requiring that licensed psychologists have a degree called a PhD. US psychology-licensing boards require that such degrees contain content equivalent to APA approved American PhDs and refuse to consider the psychology content of any training given an undergraduate tag, even when these have been developed in accordance with the APA guidelines for an accredited PhD program. There is currently no legal clause or administrative guideline in any American State or Province which acknowledges that non-US PhDs are typically advanced research degrees which are not sufficient for professional licensure because they are orthogonal to professional training and not hierarchically sequential to it. Nor are there clauses which acknowledge that the international equivalents of the US professional PhD in psychology are often given different names, including those that are reserved for pre- and low-level professional degrees in the US system. These omissions effectively disqualify the best and most appropriately foreign trained professional psychologists from US licensure, while allowing those with inappropriate training to apply.
Contrary to the international norm, licensed members of the psychology profession do not perform first-instance evaluations of foreign psychology credentials in the USA. Instead they are done by the staff of private evaluation agencies and university admission offices who have little or no training in psychology, are ignorant of the findings of reputable studies in comparative international education, use invalid measuring tools and have vested interests in devaluing foreign qualifications.
There is no regional adaptation system that allows international psychologists to complete unmet local requirements and familiarize themselves with the culture and ideology underpinning the practice of psychology in the USA. In most other countries, foreign professionals go through a short acclimatization program that does not deny them their professional status or their right to advance their careers.
Faced with this situation, some internationally trained psychologists choose to enter the standard US educational system, not because their training is inadequate or insufficient, but because American professional degrees are the only ones recognized within the US system. Many others, especially those with family commitments, have no option but to leave their professional field and work in jobs that are far below their capabilities. Talent and potential are wasted and lives are damaged.
There is an alarming shortage of psychologists in the US with appropriate linguistic and cultural training who can attend to the needs of the country's large minority communities. When the debate over immigration issues questions the contribution of immigrants to the country’s development, it is regrettable that well-trained and capable professional immigrants, who are best suited to address the mental health needs of these communities, are not given fair and appropriate evaluations of their credentials and are thus effectively blocked from obtaining licensure. This policy discriminates against internationally trained psychologists, against minority communities whose mental health needs are not appropriately being met and against American psychology practitioners who are isolated from the best of their internationally trained professional peers.
We believe this silly and inequitable situation should be changed.
Posted by: Psychologist at Nov 7, 2006 3:55:07 PM
