Is it surprising that conservatives don’t complain more about occupational licensing? On the one hand it’s not, because economists themselves don’t seem to think it’s much of a big deal. In their 2009 paper, Morris Kleiner and Alan Kreuger point out that since 2000 no articles on the issue had been written in what are considered some of the top economic journals: AER, JPE, QJE, Econometrica. In the leading labor economics journals, Industrial and Labor Relations Review and the Journal of Labor Economics, only one article on had appeared. In contrast, there were 16 articles on labor unions in just those labor journals. In a survey of five labor economics textbooks Stephenson and Wendt found that occupational licensing took up a combined total of 10 pages, whereas there were 7 chapters on unions. Clearly the profession is neglecting the issue, so why shouldn’t conservatives?
On the other hand, we have the following graph which shows unionization versus occupational licensing using data from Morris Kleiner*:
Over the last 70 years, occupational licensing come to dominate unionization as a labor market restriction, with growth in the former accelerating in recent years. The most recent estimates are that 30% of the labor force is required to have occupational licensing by a government agency, compare to around 13% that are unionized. Estimates of the impact of licensing on wages are about 10% to 15%, which is comparable to the typical estimates of the union wage premium.
So occupational licensing has the same affect on wages and is more pervasive than unionization; this tells me that conservatives should care a lot about. So why don’t they? One reason may be that they believe licensing increases quality. As I wrote yesterday, in my post on why liberals should care about occupational licensing, the evidence suggests this is not the case. But I don’t think this fact is generally appreciated.
One explanation is that, in contrast to unionism, licensing typically requires workers to jump through some impressive, expensive, and time consuming hoops, which certainly makes it seem like it should increase service quality. Also, one can certainly imagine that for many occupations there is some theoretically optimal non-zero level of licensing, but that public choice problems –highlighted here by Matt Yglesias– make that impossible.
Many conservatives may not grasp the public choice problem, and instead have too much trust in the institutions that set licensing standards. But these are mandatory government institutions, which conservatives should be skeptical of and instead favor free market, optional ones. At the very least they should favor mandatory testing, registration, and certification which allows people to work in an occupation even if they fail, but without the “Government Certified” stamp of approval.
Dean Baker’s hypothesis is that conservatives, journalists, and other professionals not complaining about occupational licensing is about class; specifically, the professional class. He argues that “free traders” only want free trade in low-skilled labor, and not high-skilled labor like doctors and other professionals. This is why they don’t complain when trade agreements come with restrictions on professional labor markets, like those on foreign doctors, but they do complain when they come with restrictions on low-skilled labor.
Even more puzzling, he argues, is that people are more concerned about restrictions on low-skilled trade between countries than on high-skilled trade between states:
The “free-trade” crew want to have a single set of standards for all forms of merchandise traded all over the world, but it has apparently escaped their attention that a lawyer from New York can’t practice across the river in New Jersey.
I don’t necessarily believe Dean’s diagnosis that free-traders really want is “cheap nannies”, and that their motivations are selfish. For one thing he frequently charges journalists with this, but are governmental barriers even among the top 10 things stopping a significant number of immigrants from putting journalists out of jobs? I do think that there is some sort of professionalism bias occurring, but it’s a bias towards believing that high-skilled labor market restrictions are for everyone’s benefit, not just their own.
In any case, whatever their motivations I think conservatives should care more about occupational licensing because it prevents free trade between the states, increases protectionism in professional services, and is a labor market restriction that is as expensive as and more pervasive than unions.
My final comment in this two-part post on occupational licensing is that I would like to see the ideologically diverse individuals and institutions who oppose occupational licensing to work together on this issue. This could be co-sponsoring papers, panels, or entire research programs. Dean Baker at the liberal CEPR, many at the libertarian Reason Foundation, and Matt Yglesias at the liberal Center for American Progress are on the same side and have written passionately about this issue. So why not a CEPR, CAP, Reason joint research program on occupational licensing? Just give me a call when you start handing out research grants.
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Thursday ~ August 19th, 2010 at 8:15 am
Hyena
How about this possibility: occupational licensing disproportionately harms poor minorities. Since neither economists nor conservatives are poor minorities, they have less reason to care. Add to that the fact that occupational licensing, unlike unions, doesn’t have the political edge dating back to the days of robber barons and you have all the reason in the world to ignore the issue.
Thursday ~ August 19th, 2010 at 10:59 am
Occupational Licensing: A New Fusion, A Genuine Proposal « Modeled Behavior
[...] ~ August 19th, 2010 in Economics, Law, Society | by Karl Smith Adam, argues that occupational licensing is an issue that conservative, liberals and libertarians can all rally around. Even if we don’t [...]
Thursday ~ August 19th, 2010 at 12:56 pm
Curt Doolittle
Sigh. Here is why:
Occupational licensing was created partly as an outsource of the guild practice of creating artificial scarcity in fields requiring low capital investment and limited knowledge. Then subsequently, licensing, which is a form of market product regulation, was applied particularly in medicine, law, and engineering, where high risks are involved — as consumer protection.
These artificial scarcities (licensing) have the benefit of driving top talent into professions that require top talent, and where the public might be subject to significant risk. Conservatives see this as a ‘social good’.
The economists argue that prices are the only issue, as if all people in the fields were equal, and as if quality didn’t degrade rapidly with numbers. (we have a high number of fields now in this country that require people from the top 10-15% of the IQ distribution, and we have inadequately invested in maintaining excellence in fields that do NOT require the upper 10-15% of the IQ distribution.) Therefore our fantasy of egalitarianism is our core political problem. See Germany for example, which, much like the UK, educates the vast majority of it’s citizens to be some sort of very quality oriented, disciplined craftsmen, and then just expects that the top ten percent will make their way in life no matter what. We seem to think that exposure to numerous fields will ‘bring out one’s talent’ rather than ‘talent is nearly irrelevant, it’s the number of hours you put into core disciplines.’.
Labor unions can create artificial scarcity if they are for the purpose of regulating quality. No one would argue with regulating that we had to hire an experienced electrician, carpenter or whatever. This would increase the quality of people in the field. It would also drive up prices. But it would be meritocratic in origin if there were some objective ‘test’.
The problem conservatives have with labor unions (just as they have a problem with medical, legal, and manufacturing lobbyists) is a) that they are overtly political, b) have been allied with communism and socialism which instead of arguing for redistribution argue for property ownership c) they work against the interests of the company too often, in particular, in regulating the dynamic nature of the business, rather than just wages d) are not creating a regulatory function, but a pricing increase WITHOUT the regulatory function. (Spoken as someone who has funded commercial construction in various areas of the country, particularly in Boston, I have all too much experience with the ‘work slower’, ‘it’s not my responsibility’, ‘I can’t pick up trash, i need a trash picker’, ‘we need three more guys for this’, and ‘disappear at lunch for the rest of the day’, ‘you can’t fire me for being lazy’, ‘invisible workers’ and every other union scam possible.) Yet you CAN fire your lawyer, doctor, and engineer.
The egalitarian democratic secular humanists, as well as the economically communist left must deal with the fact that people are vastly unequal in ability, regardless of access to education.
It’s good to see that this blog has joined the other three ‘lefties’. It’s interesting that you post so much material. It’s good for every faction to have a voice. But it’s also good to not confuse science and general mathematical correlation which utilizes the narrow scope of monetary data to argue for one’s preferences with those who have different preferences which draw from multiple other economies – the most important of which are status, knowledge and political economies. (That might be a bit hard to understand.)
In other words, you are working with convenient data, and heady assumptions and pawning it off as truth, simply because the other side does not have a way to collect preference data. When in fact, it’s simply bias that is easily driven by the form of data you’re collecting.
In any event. You’re making an erroneous categorical argument using ONE property of the process of artificial scarcity without analyzing ALL of the properties of artificial scarcity and claiming victory.
In doing so you’re neither scientific, nor rational, but simply applying a convenient cognitive bias.
Thursday ~ August 19th, 2010 at 2:06 pm
Adam Ozimek
I’ve addressed other outcomes, like quality, not just prices.
Monday ~ November 29th, 2010 at 8:34 am
Occupational license vs occupational license « Modeled Behavior
[...] As I’ve argued before, occupational licensing that benefit dentists at the expense of dental hygienists should be an issue that motivates liberal opposition. After all, this is a highly regressive transfer to a male dominated, higher educated, higher paid job from a female dominated, lower educated, lower paid job. Yet aside from tireless occupational licensing critic Matt Yglesias, occupational licensing receives relatively little attention. It’s not just liberals though, conservatives also don’t seem to care about this issue as much as they should. [...]