Regulatory Barriers to Competition in Professional Services: Measurement and Reform Experiences A Welfare Analysis of Occupational Licensing in U.S. States
Morris M. Kleiner, University of Minnesota based on work with Evan Soltas, MIT 1
Popular and Academic Interest in Occupational Licensing
Notes: “US Newspapers and Wires” is the count of mentions of “occupational licensing” in US newspapers and wires available on the Nexis database, normalized by mentions in 2000. “Academic Publications” is the count of mentions of “occupational licensing” in publications available on the Google Scholar database, divided by mentions of “economic” in each year and normalized by mentions in 2000. All data are as of September 9, 2017.
Has Licensing Gone Too Far?
“[O]verly burdensome licensure requirements weaken competition without benefiting the public.”
-U.S. Labor Sec. Alex Acosta, 8 Jan 2018, WSJ
“Too often, policymakers do not carefully weigh [the] costs and benefits when making decisions about whether or how to regulate a profession through licensing.”
– U.S. Council of Economic Advisers, Jul 2015
“I want to liberalise unfair regulation to make it easier for people to follow their dreams and start new careers.”
– U.K. Chief Sec. to the Treasury Elizabeth Truss, 26 Jun 2018
Does licensing influence social welfare?
Key Research and Policy Questions
Some occupations very likely should (not) be licensed but how/where to draw the line?
Do professional associations help cause licensing and how do they evolve?
Existing theory: Explains how licensing might affect outcomes, but no data exist to test for the predictions (Leland 1979, Shapiro 1986)
Existing evidence: Identification is a challenge, no link to costs/benefits/welfare (Kleiner & Krueger, ‘10/‘13, Gittleman& Kleiner ‘16, Gittleman et al ‘18)
Do the Origins of Licensing Suggest Rent Capture?*
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*The Origins and Evolution of Occupational Licensing in U.S. States by Carollo, Hicks, Karsh, and Kleiner, 2021
Do the Origins of Licensing Suggest Rent Capture?
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*The Origins and Evolution of Occupational Licensing in U.S. States by Carollo, Hicks, Karsh, and Kleiner, 2021
Do the Origins of Licensing Suggest Rent Capture?
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*The Origins and Evolution of Occupational Licensing in U.S. States by Carollo, Hicks, Karsh, and Kleiner, 2021
Summary of the Basic Model
Bryson and Kleiner, 2019
Findings and Implications of Occupational Licensing for the Market
Shifting an occupation in a state from entirely unlicensed to entirely licensed increases state average wages in the licensed occupation by about 15 percent, increases hours per worker by 3 percent, and reduces employment by 29 percent.
We estimate an average welfare loss of 12 percent of occupational surplus. Workers and consumers respectively bear 70 and 30 percent of the incidence.
Higher willingness to pay offsets 80 percent of higher prices for consumers, and higher wages compensate workers for 60 percent of the cost of mandated investment in occupation-specific human capital
Outcome effects of Occupational Licensing
Small income inequality effects and increasing variance in wages (Kleiner & Krueger, 2013; Kleiner & Volotnikov, 2017)
Little to no impact on quality and safety outcomes for consumers (Hall et. al., 2019; Kleiner & Kudrle, 2000; Kleiner et al., 2016; Larson, 2015, Farronato et.al. 2021) ✓
Exception: Historical initial licensing of physicians and nurse midwives (Anderson et al., 2016; Law & Kim, 2005)
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Sources of Welfare Losses of Occupational Licensing over time
Duration and Grandfathering
Battles Among Occupations—Scope of practice
Reduction in Labor Market Efficiency
Variations across states: Harris Survey Estimates of Percent Licensed by State
Effects on Labor Market Efficiency
Geographic mobility
Movement between occupations
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Does Occupational Licensing Reduce Interstate Migration in the U.S.? (Johnson and Kleiner, 2019, AEJ Policy) )
Licensing and Labor Market Dynamics
Kleiner and Xu, 2021
Kleiner and Xu, 2021
Conclusions
The results underscore that, for occupations that are not already licensed, it is worth doing a careful cost-benefit analysis of licensing before moving forward with such regulations. The results are not an ideological argument against occupational licensing in general -- but rather a toolkit for using economic reasoning and data in a policy area that previously has been otherwise mostly evidence-free assertions about consumer protection.
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Regulatory Barriers to Competition in Professional Services: Measurement and Reform Experiences
Thank you for the opportunity to discuss implications of occupational regulation with OECD researchers!
Speaker Contact Information:
Morris M. Kleiner kleiner@umn.edu