Readers of this blog don’t need to be told about the awfulness of occupational licensing, but it is heartening to see the issue get a lengthy treatment in the Wall Street Journal today. I always find it humorous, if depressing, to read and write about licensing, in that you’ll get absurd gems of regulatory self-parody like this:
A shampoo specialist in Texas, for instance, learns about neck anatomy and must practice skills such as regulating water temperature.
and
In Michigan, for instance, it will soon be a felony to practice massage without a license… But a grandfather clause exempts most current massage therapists, including those who may never have taken a class at an accredited school.
and
In Kentucky, the Board of Hairdressers and Cosmetologists has eight full-time inspectors who spend much of their time responding to anonymous tips about unlicensed manicurists. The inspectors rarely catch the alleged offenders, says Charles Lykins, the board’s administrator, because “they take off running.”
and
If Kimberly Raisanen has anything to say about it, cat groomers might one day make it onto the list, too. Ms. Raisanen, a groomer in Fairview Park, Ohio, helped found the Professional Cat Groomers Association of America in 2008 to establish better education standards for the animal specialists who trim, clip, style and fluff felines.
On the plus side, the WSJ reports that McKinsey has a large report on occupational licensing coming out where they will call for reforms to get rid of “unnecessary regulatory barriers that limit competition in pockets of the economy.” Contra Tyler Cowen, this is low hanging fruit.
Overall the article is excellent and even discusses labor mobility issues. You couldn’t ask for a better story on this issue in a major newspaper, and the reporter Stephanie Simon deserves praise for this. The title of this post is “Occupational Licensing on the Rise”, but perhaps this article and the upcoming McKinsey report are heralding in a new era of skepticism and reform of licensing.
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Monday ~ February 7th, 2011 at 10:22 pm
Jeff
If this is the best example we have of Tyler Cowen’s low hanging fruit, he’s right and we’re not in good shape. It’s hard to see how reforming licensing for manicurists and preventing licensing for cat groomers is going to lead to ’50′s-style wage growth for the working class over the next generation.
Monday ~ February 7th, 2011 at 11:29 pm
govt_mule
Not so crazy about this piece. The author states that “But economists… say licensing mostly serves as a form of protectionism”. By “economists” she means one economist, Morris Kleiner. She presents a few wacky but insignificant factoids, but no serious info or analysis, such as where Kleiner’s $116B figure comes from.
I’ve looked at a few of Kleiner’s papers and they do not inspire a lot of confidence in his conclusions. In “Occupational Licensing” he attempts to calculate the effects of licensure by comparing dentists (with doctorates & $83k incomes) with chemists/biologists (with bachelors degrees & $35k incomes), and lawyers (J.D., bar exam, $77k) with personnel specialists (B.A., $31k). Not very good choices. The newest paper looks at a wider range of occupations, but isn’t much better.
Monday ~ February 7th, 2011 at 11:44 pm
Adam Ozimek
You’ll find that economists in generally very much in agreement with Mr.Kleiner, who is very well respected and is the top expert on this issue.
Tuesday ~ February 8th, 2011 at 10:03 am
govt_mule
I stand corrected – Simon is right to say Kleiner speaks for economists in general on this issue.
Nonetheless, I think his data and methods are inadequate to support his conclusions.
BTW, why are wage functions always expressed in log form, rather than linear form? Is this a holdover from slide rule days?
Tuesday ~ February 8th, 2011 at 11:18 am
buddyglass
I’m all for more occupational mobility, but on the other hand I can definitely see the utility (for the consumer) of licensing. If I go to get a hair cut, I’d like a convenient way to determine whether the guy offering to cut my hair is even remotely competent. All the more if, instead of getting my hair cut, I’m getting my spleen removed.
I could see these licensing agencies being independent of the state, though, in the same way that the organization that rates movies (and the one that rates video games) are. Essentially have the industry provide its own “achievement benchmark”.
Tuesday ~ February 8th, 2011 at 11:22 am
Adam Ozimek
Exactly. This is optional certification. Or if for some reason we think the government is best at determining qualifications they can still do credentialing and force people to disclose that they aren’t credentialed, but allow non-credentialed people to still provide services and just let consumers choose. The key is that non-credentialed businesses not be outlawed. If consumers want credentials they will choose those who have them.
Tuesday ~ February 8th, 2011 at 12:09 pm
buddyglass
Generally I think I agree with you. Three thoughts though, two in response to something you said:
“The key is that non-credentialed businesses not be outlawed.”
If you provide credentialing and force non-credentialed operators to prominently display that fact…you de facto ban non-credentialed operators since they most likely can’t achieve profitability.
“If consumers want credentials they will choose those who have them.”
Choice is good. Except there are a lot of dumb people who will make choices that are seriously hazardous to their health and, potentially, the health of their dependents. Even getting away from the “dumb” accusation, for some fields it takes a fairly high level of field-specific knowledge to really appreciate the difference between a credentialed person and a non-credentialed. If the average consumer doesn’t “get” why it’s important to contract with a licensed doctor to do his surgery, that might argue for a legal prohibition on non-licensed practice.
Third thought: It seems to me that often the “organic” solution arrived at by the market is not optimal. For instance, a given industry might settle on a set of requirements where if a given operator meets them it still doesn’t afford much confidence in that person’s competence. You might think, “Well, the market will correct that; someone will come up with a better set of requirements and operators will start to covet that set of credentials,” except…I’m not so sure. There’s inertia. Sometimes a given standards body may become so entrenched that it’s impossible for a competing standard to arise.
So, while I think its better to leave licensing to non-state bodies, I think it has the potential to result in a crappy overall solution.
Tuesday ~ February 8th, 2011 at 12:26 pm
Adam Ozimek
I disagree that credentialing leads to a de-facto ban. In my state there are industry set credentials for interior designers, yet non-credentialed interior designers continue to operate.
You’re presuming that licensing raises quality, which there isn’t a lot of evidence to support, and seems as likely that the opposite will occur.
“There’s inertia. Sometimes a given standards body may become so entrenched that it’s impossible for a competing standard to arise.” This is a possibility under credentialing, but it is a certainty under licensing, so I don’t think this is point in favor of licensing.
Yes: it is possible that some credentialing solutions are crappy, but crappy is pretty much the status quo for licensing. Credentialing at least allows the possibility of evolution to a non-crappy state. It’d be nice if the government (or someone) could mandate a non-crappy solution to this, but they can’t.
Tuesday ~ February 8th, 2011 at 1:22 pm
govt_mule
Allowing you to choose between licensed and non-licensed operators would be fine if the consequences of that decision were limited to you. But most occupations are licensed because their performance affects the public at large. The cheap electrician you hire isn’t just going to burn down your condo, he’s going to burn down the whole building. The unlicensed doctor who treats every sniffle with antibiotics helps breed drug resistant germs that endanger the health of everyone.
What is the basis for asserting that “crappy is pretty much the status quo for licensing”?
Tuesday ~ February 8th, 2011 at 1:30 pm
Adam Ozimek
“What is the basis for asserting that “crappy is pretty much the status quo for licensing”?”
A large wage premium with no effect on quality and obvious and widespread examples of regulatory capture intended to do nothing but increase rents to incumbents. So it doesn’t help the externalities of some decisions. Insurance, torts, and norms helps minimize a lot of the problems you’ve identified, licensing does not.
Also remember that increasing costs drives people into the black market or causes them to go untreated. Whats more dangerous: an unlicensed but credentialed electrician or some dude doing his own repairs because he can’t afford a licensed electrician? Likewise, high medical prices prevent people from seeking treatment for communicable diseases.
Tuesday ~ February 8th, 2011 at 2:08 pm
Bidrec
In City for Sale: Ed Koch and the Betrayal of New York by Wayne Barrett and Jack Newfield the authors point out that Manes, the Queens Borough President only used doctors and lawyers in his corruption schemes because they were licensed by the state. They could be manipulated because they could lose that license.
Tuesday ~ February 8th, 2011 at 3:31 pm
govt_mule
“A large wage premium with no effect on quality and obvious and widespread examples of regulatory capture”
On what specific data (preferably available on the web) are you basing such sweeping generalities?
This dude owns a house and can afford $850 for the unlicensed electrician, but not $1000 for the licensed guy? An indigent with a communicable disease can’t get tested and treated free by the local health department or emergency room? I don’t think so. But even if there were significant black market situations, the solution is for licensed electricians, doctors, and lawyers to do pro-bono or sliding-scale work for the poor (as many do), and/or for the government to subsidize those services (as it does).
Tuesday ~ February 8th, 2011 at 3:47 pm
Adam Ozimek
I’ve written extensively on this. Read the following first, see if I’ve already addressed your points before, and then we can debate further:
http://modeledbehavior.com/?s=%22occupational+license%22
Some duplicates here obviously, but some not:
http://modeledbehavior.com/?s=%22occupational+licensing%22
Wednesday ~ February 9th, 2011 at 10:29 am
govt_mule
You have indeed written on this topic pretty extensively, repeatedly claiming that licensing does not correlate to quality of service and that there are serious problems with current licensing policies. If there is data that supports these claims, I would likely agree with you. But I have not seen such info in any of these posts. The only hard data you provide is the $1.5B that Kleiner estimates could go to dental hygienists if they were allowed to practice independently in all states (simply transferring money from one set of licensed operators to another, not lowering prices for consumers). And please, let’s ignore the horse dentists, lightening rod installers, and other frivolous and insignificant licensees and focus on the occupations where licensure has a significant economic and societal impact.
Wednesday ~ February 9th, 2011 at 11:19 am
Adam Ozimek
I’ve discussed the literature on quality before, for instance see here
If you’re interested you should google around for lit reviews on studies about teacher certification and outcome quality difference between nurses in doctors, which are in particular telling.
As to the claim that “there are serious problems with current licensing policies”, well, if licensing doesn’t increase quality, then it’s a problem since that’s it’s stated purpose. Look at my most recent post where I discuss Indiana and California. Obviously huge differences in licensing without any evidence for quality differences.
And really there is a HUGE portion of this debate that is qualitative. I’ve made so many of these arguments and occupational licensing supports just ignore them. There are many many examples where licensing is clearly rent seeking, e.g. the prominence of grandfather clauses clearly indicates this. I’ve yet to see these points rebutted, or or anything.
The debate with many liberals on this is beginning to get frustrating, and I really don’t understand it, except perhaps that they are so irrationally committed to anything that symbolically appears to represent helping workers. So apologies if I appear short of patience on this issue.
Wednesday ~ February 9th, 2011 at 1:08 pm
govt_mule
Maybe I can provide some constructive criticism that will help make liberals more receptive to your arguments. I think you have some good points but they need to be better presented to be persuasive.
One problem I have with your posts on this subject is that they appear unfocused. Your primary concern seems be about quality and savings to consumers, but you very stray from the point. You bring up frivolous stuff about fortune tellers, etc. You spend a lot of time on issues such as dentists vs. hygienist and doctor vs. nurses, which have nothing to do with quality or savings, but are rather about distribution of fees between two classes of license holders. And the whole thing about dentist/hygienist licensing issues being about gender and class is just distracting. Ditto with concerns about how licensing prevents single mom’s from pursuing their career choices. Becky can’t be a masseuse without getting the training needed to secure a license, just as she can’t become an economist without getting a degree.
Another problem is the failure to provide data. In the post you refer to above about quality, you link to two papers and one book by Kleiner. I don’t have the book, but the papers don’t say squat about quality – they focus on prevalence and wage premiums. In the quoted section of an earlier post above you mention studies on malpractice, primary care by nurses, and teacher certification, but don’t cite any references. Your argument would be much stronger if you linked to the papers you feel support your case. And then discuss the data in those papers critically, acknowledging their limitations and clearly stating what their results show about the licensure issues.
Your reasoning often seems to be abbreviated or predicated on unstated assumptions. For example, you conclude that licensing isn’t related to quality because malpractice premiums “aren’t lower in states with occupational licensing”. There are many of factors that set malpractice rates, and concluding that operator quality is the sole determinant is quite a reach. I’d bet that states that don’t require licensing also have tort limits and/or historically lower malpractice awards that keep premiums lower, to name just one. Maybe these factors have been addressed in the cited paper or in your analysis – if so that needs to explicitly stated for your argument to carry weight. Based on the fact that California has more licenses than Indiana you leap to the conclusion that this is a Bad Thing. Maybe California uses licenses to generate revenue, or to ensure compliance with its strict pollution and other regulations. Maybe licenses are restrictive, maybe they are just perfunctory like driver’s licenses. Drawing conclusions without the data to support them weakens the credibility of other (probably valid) conclusions.