Occupational licensing directly affects more than 1 in 5 U.S. workers today, up from 1 in 20 workers in the 1950s, which is nearly double the percentage of workers with occupational licenses. Union The percentage of workers receiving federal benefits is more than 15 times higher. minimum wageAlthough licensing systems are widespread in the United States, they have not received as much attention as other labor market systems. Occupational licensing systems impose costs on both consumers and job seekers but provide tangible benefits to existing market workers. Occupational licensing systems persist even though their costs likely outweigh the benefits.
This is the first paragraph of Edward J. Timmons’ book:Occupational LicenseEdited by David R. Henderson A concise encyclopedia of economicsThis is a long-awaited update of the original encyclopedia treatise on occupational licensing, “Occupational Licensure,” by David S. Young. Young’s paper is remarkably well-written, considering it is 31 years old. Yet, much has happened in both policy and research on the issue, and Timmons is at the forefront of this work.
Another excerpt:
Economists have estimated the effects of occupational licensing on consumers, aspiring workers, and existing workers. Economic theory suggests that by limiting consumer choice and restricting the number of licensed providers of services, licensing should increase prices. Studies have found that licensing increases the price of licensed services by 3 to 13 percent.
There is mixed evidence about the impact of licensing on the quality of services consumers receive. Some studies that looked at licensing of physicians and midwives in the early 20th century found some evidence of consumer benefits in the form of reduced mortality rates. Studies that estimate the impact of licensing in the 21st century often find little evidence of consumer benefits. A recent book by the Upjohn Institute examining case studies of licensing in the United States and Europe concluded that licensing has not improved the quality of services provided to consumers.
It is also important to note that estimating the average effect of licensing on quality may not fully capture the loss of access to services due to a decline in the number of professionals. This is known as the “Cadillac effect”. Milton Friedman coined the idea in his classic 1962 book, “The Cadillac Effect.” Capitalism and FreedomThe idea is that licensing restricts consumers to either buying services from providers who meet the standards set by the licensing board (the Cadillacs) or not buying services at all. This may encourage consumers to look for services in the underground economy or motivate consumers to do the services themselves. Early work by Carrol and Gaston supports the idea that when licensing restricts entry and limits consumer choice, consumers do more “do it themselves”.
Note above that Milton Friedman was one of the earliest skeptics of medical licensing long before skepticism became fashionable. I remember being struck when I was 17 by his argument that we could get quality medical care without licensing. As Milton recognized at the time, he took the hardest problem to refute and, at least in my opinion, refuted it.
Thanks Alicia PlemonsA leading expert in the field, she humbly recommended her colleague. Edward Timmons Thanks to me, the author of this piece, and to Tyler Cohen for taking a quick look.
