Occupational Licensing: Access or Exclusion?

EconTalk Extra
by Amy Willis
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Beth Redbird on Licensing... Edward Glaeser on Joblessness ...

construction.jpg Is our knee-jerk reaction to the dangers of occupational licensing overdone? Would we be better served by taking a more nuanced approach? In this week's episode, EconTalk host Russ Roberts welcomes sociologist Beth Redbird to explore these questions. Roberts is surprised by some of her findings...Were you?

We hope you'll use these prompts (or leave us some of your own) to share your reaction to this week's episode in the Comments. As always, we love to hear from you!

1. Redbird notes a dramatic increase in occupational licensing since the 1970s and 80s. What accounts for this increase? What's wrong with our estimates of licensing effects?

2. Is the increase in occupational licensing a supply- or demand- side effect? (As always, bonus points for graphs!!!)

3. How does Redbird suggest that occupational licensing can be a benefit for people traditionally excluded from certain occupations, namely women and minorities? To what extent does this argument for access outweigh the wage effects?

4. What's the difference between an inequality created by the marketplace and an inequality created as a result of legislation or regulation? Which is more pernicious, and why?

5. Redbird recounts a number of avenues for future research into occupational licensing. To what extent, for example, do you think licensing might "rigidify a state economy and make it less able to bounce back from...periods of recession?"

6. Extra credit: By whom were you more convinced regarding occupational licensing, Beth Redbird or Dick Carpenter? Explain.

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CATEGORIES: Extras (200) , Labor (69)

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COMMENTS (5 to date)
Luke J writes:

1) Redbird's paper states "the most substantial growth [in occupational closure] has been in blue-collar occupations, and particularly the production and transportation sector..."

Transportation and various manufacturing industries usually make top 10 most regulated every year. Maybe licensing has grown as the compliance burden has increased.

I had a thought that the rise of licensing might be correlated with the decline of labor unions, but the latter began much earlier (post WWII).

2) According to David Carpenter, licensing is usually driven/advocated by the suppliers. The standard illustration is to shift the supply curve to the left, and the price for each quantity supplied increases, and the new equilibrium price would depend on the elasticity of demand.

If Redbird is correct that the wages are lower for some people after the licensing, then perhaps these are highly competitive markets in which demand is perfectly elastic (a horizontal line). Prices cannot rise, so the licensing cost falls exclusively on the suppliers. Ironically, the expected result of instituting a license requirement in a highly competitive market would be reduced quality.

I used to be able to walk into a barber and have a cut in 20 minutes or less for $10 or less. Now, it's $30 or more (they do throw in a beer), and I have to have an appointment, and the end result is something not much better than what I can do from home. So now my wife cuts my hair, while I drink a beer that cost less than $1 because I bought a case from Costco.

3) I am willing to accept that a license expands access, sometimes. A current example: naturopathic doctors (ie people who graduate from an accredited 4 year medical school) are lobbying for an expansion of licensing throughout the US. Many states have licensing laws that allow NDs to fully practice as doctors, meaning they can diagnose disease, prescribe pharmaceuticals, etc. In states where there are no ND licensing laws, NDs are barred from their full scope of practice. So in this case, expanding licensure = expanding supply.

But, women and minorities have not really been excluded from becoming NDs. Traditionally, alternative medicine has been a feature of non-male, and often non-white, persons. Maybe in some business roles (paralegals), Redbird's findings are true. But then the effects were so small, and in context of other social changes broadly, I find myself skeptical that occupational licensing is a golden gateway for people of certain identities.

4) The market-based inequality arises from protecting the process by which people voluntarily interact (eg freedom of association, price discrimination, several property). People are diverse therefore outcomes are diverse. The means are the ends.

Regulatory-based inequality (and here I am meaning State implemented regulation) arises from either purposely manipulating inputs to create the desired outputs, or from directly redistributing the output. Some unequal means are okay if we can generate equal ends.

Personally, I am more tolerant of market-based inequality, but both can be pernicious, which is why institutions (e.g. churches, social clubs, PACs) have risen to combat both.

5) The research with First nations and market closure/participation is really interesting. Back in 2016 or 2017, Terry Anderson was an Econtalk guest and spoke about Native American tribes and their plight. I think there is a lot we can learn about the failure of reservations.

6) Both have a part of the story. I tend to agree more with Carpenter, but Redbird's data seems to go deeper. Why are we surprised to find that yes, licensing is harmful, sometimes, and sometimes has 0 affect other times?


Ryan Nieuwendaal writes:

"...perpetually kind of interested in this idea that inequality created by a marketplace has a positive value; and inequality created by, say, a legislative or regulatory process has a negative value affiliated with it..."

Good podcast, but that doesn't sound like an unbiased take to me.

mark writes:

I have heard you discuss the current trend not to move. I think you are missing significant impediments to moving - 2 income earners and family support for child rearing. Getting two jobs in a new location is a harder and giving up a job for the spouse has its social dynamics. A larger factor is the support one often gets from family to help with kids either with day care, babysitting, or other general support. Family life can be much more stressful with 2 parents trying to work and not having a safety value of other family to pitch in.

Wolf D writes:

I'd say the crux of the matter is that licensing and competence/expertise are not the same thing. The extent to which they overlap is an empirical question – there are plenty of crummy yet extremely well-qualified or lousy and unqualified "professionals" to cast doubt on the absolute benefit or hindrance of licensing. My libertarian instinct is to say that the proof of the pudding is in the eating, not the cook's credentials, and that while talent, ability and skill need to be developed, they do not emerge from the licensing process itself.

On a different note, Redbird seems more concerned with the impact of licensing on (disadvantaged) groups than on individuals. Slicing and dicing society and putting people into whatever categories reinforce the researcher's preoccupations/biases is one of my gripes with sociology. Or is that unfair/inaccurate?

Richard Fulmer writes:

One aspect of licensing that was not discussed during the interview is the issue of free entry. That is, is the number of licenses fixed (e.g., taxi medallions)? I think this is key to the questions of how licensing impacts wages and employment.

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