The Effects of Occupational Licensure on Competition, Consumers, and the Workforce:

Empirical Research & Results

A Roundtable Organized by the FTC's Economic Liberty Task Force November 7, 2017 I #EconlibertyFTC

November 7, 2017 I #EconlibertyFTC I ·

Welcome

Effects of Occupational Licensure on Competition, Consumers, and the Workforce: Empirical Research and Results

Federal Trade Commission, Washington, D.C. November 7, 2017

Licensing Occupations: An Overview

Morris M. Kleiner, University of Minnesota, Twin-Cities

of the Workforce 30

25

20

15

10

0 19505 19605 19705 19805 19'J05 2000 2006 2008

sources: The Council of State Govemmeris (1952);Greene (1969); Kleiner( 1990); Klelner(2006); and Kleiner and Krueger(2013), Westat data;CEA calculation,

How Prevalent Is Occupational Licensing?*

In 2015, approximately 25% of workers required a license from the government.

In 2003, more than 800 occupations were licensed in at least one state. *Wozniak et. al. White House Report, 2015

Extent of the Issue

Over 800 occupations are licensed by at least one state

Over 1,100 registered, certified, or licensed in at least one state

65 occupations licensed in all states

*Wozniak et. al. White House Report, 2015

Use of least restrictive form of regulation consistent with policy goals

Market competition and private litigation

Deceptive trade practice acts and other targeted consumer protections

Inspections

Bonding or Insurance

Registration Certification

Licensing Lee McGrath, Institute for Justice, 2016

Former Supreme Court Justice Samuel Jackson

“The modern state owes and attempts to perform a duty to protect the public from those who seek for one purpose or another to obtain money. When one does so through the practice of a calling, the state may have an interest in shielding the public against the untrustworthy, the incompetent, or the irresponsible.”

Market Economist Perspective “ The puzzle is not why we have so many silly licensure

laws, but why we don’t have far more.”

On the other side, the great argument for the market is its tolerance of diversity; its ability to utilize a wide range of special knowledge and capacity. It renders special groups impotent to prevent experimentation and permits the customers and not the producers to decide what will serve the customers’ best.”

Milton Friedman, Capitalism and Freedom, University of Chicago Press, 1962

Why is occupational licensing important

Since licensing influences many more individuals in the United States and in some other nations than unions or the minimum wage, its evaluation should be important for social science researchers, policymakers, and citizens!

Licensing Wage Effects by Occupation Kleiner (2000) Dentists, lawyers, barbers,

and cosmetologists Earnings are higher for licensed occupations that require more education and training relative to comparable unlicensed occupations.

Kleiner and Kudrle (2000) Dentists Practitioners in the most regulated states earn 12% more than those in the least regulated states.

Tenn (2000) Lawyers Low rates of interstate in migration and outmigration, a common effect of licensing, is associated with high wages.

Angrist and Guryan (2003) Teachers State-mandated teacher testing increases teacher salaries.

Timmons and Thornton (2013)

Massage Therapists Licensing raises wages by more than 16 percent

Aggregate Impacts and Influence on Wages Attainment

Kleiner and Krueger, 2010 and 2013, 15% +

Kleiner and Volotnikov, 2017, 11 %

Gittleman, Klee and Kleiner, forthcoming 9%

Coverage

Redbird, 2017, no effect

.6

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2.8

2 .6

-10 0 10 20 30 40 50 60 Time from the start of occupational licensing statues (Year)

o Mean of Log Hourly Wage fo r Occupations that Changed Regu lations Status Fitted Linear Wage Lines fo r Occupations that Changed Regulation Status

i>. Mean of Log Hourly Wage fo r Never Lice nsed Occupations Fitted Linear Wage Lines for Never Licensed Occupations

70

Plotting the Relationship between Earnings and Duration of Licensing Coverage in the U.S. (Han and Kleiner, 2017)

of Workforce Licensed, by State

-:-,.. HI .a..._

26,6 ~

D 20.4 and below • 20.5 to 24.0 • 24.l and above Source: KleinN and Vorotnlkov (2015) based on an analysis of data from a Harris po11 of 9,850 Individuals conducted in the first half of 2013. Note: The three categories w ere constructed to contain roughly the same number of states.

NH . VT 14.7 1 16.8 "

f'-. MA

- 21 ,3

Harris Survey Estimates of Percent Licensed by State

.ot

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(;.!:) 0 .00:5

0 !J..9 4 5

Interstate Migration Rates and Occupational Licensure, 1950-2008

1955 196:5 197:5 !19 85 !1995 200:5

- Gross Migration Rate - L icensing R ate

035

03

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Does Occupational Licensing Reduce Interstate Migration in the U.S.? (Johnson and Kleiner, 2017) )

• Occu pation Restriction Studied

Kl ei ner et a I. (20 14) Nu rs i ng M ed i um level o f regu lati on

Kl ei n er et a I. (2014) Nur s i ng High level o f regu l at i o n 16 .0

Kl ei ner a nd Todd Mortgage An add iti onal $ 100,00 0 in 5.4pp

(2009) Bro kers state broker bondi ng/n et p r i ced

worth req u i r ement

Kl ei n er a nd Todd Mortgage Index of ot her st a t e broker Pr o b a bi li ty t hat a mort gage i s No effec t

(2009) Bro kers l i cen si ng req ui rem en ts p r iced

Kl ei ner a nd Kudrl e Den t i st ry Pass ra t e o f denta l exam Pr ice of fi ll i ng a cavi ty ~1.0

(2000)

Kl ei n er a nd Kudrl e Den t ist ry High level o f regu l at i o n (no Pr ice o f fi ll i ng a cavi ty 11 .0

(2000) r ec i proc i ty o r end o rsem en t )

Kl ei n er a nd Kudr le Den t ist ry Res t r i ct io n i nd ex b ased o n Pr ice o f fi ll i ng a cavi ty No effec t

(20 00) regu la t ion and pass ra t e

I evel s rel at ive to average

Li a ng and Ogur Den t istry Rest r icti o ns on n umber of Pr ice of dent a l v i s i t i n 19 70 5 .0

(1987) hygien i st s and ass i st a nts or

thei r fu n ct io ns

Li a ng an d Ogur Denti stry Res t r icti o n s on n umber of Pr ice o f dent a l v i s i t i n 1982 7.0

(1987) hygien i sts and ass ista nts o r

thei r fu n ct io ns

Co nr ad a nd Shel do n Den t i stry Li m i t ed rec i p roc ity Pr ice ind ex o f d ent a l services 3 .3

(1982)

Co nr ad a nd Shel do n Den t istry Res t r i ct io ns on t he nu m b er o f Pr ice i nd ex o f serv i ces 4 .0

(1982 ) b r a nc h o ffi ces

Co nr ad a nd Shel do n Den t ist ry Rest r i ct io ns o n t he number o f Pr ice ind ex o f serv i ces 4.0

(1982) hygien ists C::hPn A r rl ( 1 Q7R\ n Pn t i c:: t nt Nn r Pr i n r nr i h, { Ahi l i h, t n Prir i::u:; n f 1 / rl i ffPrPnt rl P n t.:::.i l c::Pn,irP RA nap c:; f rnm

Influence on Prices (from White House Report, 2015) Occupational Licensing raises prices

Direct Quality Effects

• Health Care Sector ✓ Early Midwifery and Maternal Mortality (Anderson et al. 2016) ✓ Dentistry and Dental Outcomes (Kleiner & Kudrle 2000) ✓ Nurse Practitioners and Infant Mortality (Kleiner et al. 2016)

• Education ✓ State Certification Requirements and Teacher Quality

(Angrist & Guryan 2007, Larson 2015)

• Service/ Finance Based Occupations ✓ Licensing and Yelp Ratings (Deyo 2016) ✓ Fund Managers and Required Information Disclosure (Berk

and van Binsbergen, 2017)

Effects of Occupational Licensure on Competition, Consumers, and the Workforce: Empirical Research and Results

Licensing Occupations: An Overview

Thank you for your attention!

The Effects of Occupational Licensure on Competition, Consumers, and the Workforce: Empirical Research and Results

~ I

,~.

Dr. Edward Timmons Saint Francis University Director, Knee Center for the Study of Occupational Regulation November 7th, 2017

Occupational licensing research

• csorsfu.com • Removal of licensing • Non-physician scope of practice • Licensing and economic mobility

http:csorsfu.com

Find Occupations News & Events Legislation About CSOR Contact

Occupation Categories: Occupations Get Data

Healthcare Pract1boners and Technical Occupations • [ Perfusiornsts • ] M§f Mil

Regulat ions

Source Link

Source Link

Source Lmk

Year Licensed

2008

Licensing Fees

50

High School/G ED

Yes

Degree

Yes !vlaslersDegee

LOGIN REG ISTER

Q

csorsfu.com

http:csorsfu.com

Removal of licensing

• Barbers in Alabama • Hair braiders in Virginia • Tracking de-licensing

NP \11..-n, ... \_.,_;._1kmt1r " ·R, I Pll \ C'TITIO'- l" HS'"

2017 Nurse Practitioner State Practice Environment

·-·

Non-physician scope of practice

• Nurse practitioner scope of practice and autonomy • Physical therapist direct access

50

ii 50 0

~ 40 . E g 30 0 u

UJ 20

0 10 "' -" .. 0

0

Growth in low- and moderate-income occupations and absolute economic mobility

.. . . . . •

10 20 30 40 50 50

Increase i n the number of licensed occupati ons (1993 to 2012)

70

Licensing and economic mobility

• Low-income licensing and economic mobility • Preliminary evidence of a negative correlation

The Economic and Structural Effects of Occupational Licensure Beth Redbird, PhD Assistant Professor NORTHWESTERN UNIVERSITY

2012 = 32.4%

Workers Required to Hold a License

on- 2012 = 11.5%

-1980 1990 2000 2010

Year

-'° -.J 0

-'° 00 0

-'° --< '° (1)0 el

N 0 0 0

N 0 -0

2000 Number of Occupations Licensed 2500 3000 3500 4000

Grow

th in Licensing Laws

This Study 340 Occupations

1,741 New Laws

50 States

1970-2012

Unlicensed Licensed

0.94% wage decrease

about -$383.45 yearly

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10 15 Years Since Enactment

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Wages After Enactment

.o

'

A Tale of Two Paralegals Licensed

Unlicensed

Change in Share of Labor Supplied (Percent Difference)

-5.0 0.0 5.0 10.0 15.0 I

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ecrease Supply?

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Change in Educational Attainment (Percent Difference)

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All Occupations Lioensed in Tin1efran1e

5 10 15 20 Years Since Enachnent

Results Vary

Change in Occupational Composition (Percent Difference)

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Increased Access

;::l a ·- Proportion Black --·-r.n. 0 a

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Years Since Enactment

Increased Access

/- ...... ' /'/ / ,.-... I ' I ~ I ' ~ I ', ,,,/ H / -........._ /~c; I ,,,..--, '--.. ______________ .-r.r, 0 / / ', ~ I I '--..._ ·- I I .__ - - - - - - -~ I I ._ - - - - - ---- - -~ 0 / / o~ 0 . ------------11------------------------------------o.00 I I ~ I I·- Irfl ~ I

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N I 0 I0

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0 05 10 20 30 40 50 60 70 80 90 95 100 Percentile

Men Women

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e::! g /~ ', ,,,- ... , / ', I \ I -... \ I 0-. e::! / ,_,,. , / -. , \ / \ I ~ -~ ' / ,J \ I ='+--< I ._; -.,/ ~ 6 ~ -+-I'--- ........ ----------------------------------------~ .s oJ

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0 5

Increase in Female Supply

IO 15 20 Years Since Enactment

What Happened?

New Licensing Laws

Mixed Control 0.01

Republican Control

Unionized

Vocational Education Available

Education Level

Deals with Customers

Dangerous Conditions

Error are Significant

Hazardous Materials

Physical Labor

-0.41 ***

0.97***

1.36 ***

0.14 ***

0.04 ***

0.01 ***

0.04 ***

0.01 ***

-0.01 *** legend: * p

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Rational Consumers Regulating Charlatans in High-Skill Professions Jonathan Berk and Jules van Binsbergen

Policy Goal

Consumer Surplus Consumer + Producer Surplus

Does information asymmetry prevent Does information asymmetry prevent market from existing? market from existing?

No Yes No Yes

Wage elasticity skilled labor supply

Lo w

Hig h

Wage elasticity skilled labor supply

License

Certify Certify

Minimal certification so market exists

License

License

Certify

License Minimal certification so market exists

License

Slide Number 1Welcome�������������How Prevalent Is Occupational Licensing?*Extent of the Issue Use of least restrictive form of regulation consistent with policy goalsFormer Supreme Court Justice Samuel Jackson Market Economist Perspective Why is occupational licensing importantLicensing Wage Effects by OccupationAggregate Impacts and Influence on WagesPlotting the Relationship between Earnings and Duration of Licensing Coverage in the U.S. (Han and Kleiner, 2017)Harris Survey Estimates of Percent Licensed by StateDoes Occupational Licensing Reduce Interstate Migration in the U.S.? (Johnson and Kleiner, 2017)�)Slide Number 15Influence on Prices (from White House Report, 2015)Direct Quality EffectsSlide Number 18Dr. Edward Timmons�Saint Francis University�Director, Knee Center for the Study of Occupational Regulation�November 7th, 2017Occupational licensing researchcsorsfu.comRemoval of licensingNon-physician scope of practiceLicensing and economic mobilityThe Economic and Structural Effects of Occupational LicensureSlide Number 26Growth in Licensing LawsThis StudyUnlicensedWages After EnactmentA Tale of Two ParalegalsDecrease Supply?Increase Quality?Results VaryIncreased AccessIncreased AccessSlide Number 37What Happened?Where does licensing appear?Slide Number 40