Occupational licensing

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Licensure
)

Occupational licensing, also called licensure, is a form of government regulation requiring a license to pursue a particular profession or vocation for compensation. It is related to occupational closure.

There is strongest public support[

jurisdictions
also require licenses for a much wider range of professions, such as florists and hairdressers.

Licensing creates a regulatory barrier to entry into licensed occupations. Licensing advocates argue that it protects the public interest by keeping incompetent and unscrupulous individuals from working with the public. However, there is little evidence that it affects the overall quality of services provided to customers by members of the regulated occupation.[1] It can also harm consumers by raising prices and reducing innovation by new market entrants, and may slow overall economic growth.[2] Competition law can conflict with licensing practices if the licensing body favors its own licensees in ways that do not clearly protect the public.

Alternatives to individual licensing include only requiring that at least one person on a premises be licensed to oversee unlicensed practitioners, permitting of the business overall, random health and safety inspections, general consumer protection laws, and deregulation in favor of voluntary professional certification schemes or free market mechanisms such as customer review sites.

History

Traditionally, occupations in the

crafts professions and in the liberal professions organize their respective industries in guilds and chambers in European countries like Germany and Austria. One of the most important changes in licensing has been the 2004 reform in Germany, where workers in 53 of 94 crafts professions were not required to be licensed anymore in order to start a business.[3]
In 2020, 12 of these deregulated professions reinstated the licensing requirement.

In the United Kingdom, the Medical Act 1858 established the first countrywide licensing body for doctors.

Types

In the United States and Canada, licensing (the term registration is sometimes used) is usually required by law to work in a particular profession or to obtain a privilege such as to drive a car or truck. Many other privileges and professions require a license, generally from the state or provincial government, in order to ensure that the public will not be harmed by the incompetence of the practitioners, and to limit supply to incumbent practitioners and thus increase wages.[4]

Examples of professions that require licensure in some jurisdictions include:

surveyor, and teacher
.

Licensure is similar to

Professional Engineer
).

License renewal

In places, licensure may still be a lifelong privilege, but increasingly nowadays, it requires periodic review by peers and renewal. It is very common for license renewal to depend, at least in part, on

UK medical licensing system has largely been a response to public and government unease about a series of recent and well-publicised cases of alleged medical incompetence, including the Harold Shipman case, the Alder Hey organs scandal[8] and those involving David Southall, Rodney Ledward[9] and Richard Neale.[10]
Such cases of
medical practitioners and monitor the quality of their practice for their entire working life. One qualification for life is no longer deemed sufficient.[11] Consequently, medical licenses can now be withdrawn when evidence of serious malpractice emerges. Currently, though such reviews of CPD are entirely voluntary, some form of professional development is already strongly encouraged within the medical profession.[12]

Economic theory

One simple theory of occupational licensing envisions a costless supply of

incumbents and discipline those whose performance is below standard with punishments that may include revocation of the license needed to practise. Assuming that entry and performance are controlled in these ways, the quality of service in the profession will almost automatically be maintained at or above standards that are set by the gatekeeper to the profession. Within this approach, only those who have the funds to invest in training
and the ability to do the work are able to enter the occupation.

Introducing

cars
, then individuals may shift between these lines of work with little loss of income.

Under these circumstances, meaningful

capital investments
in order to attain additional requirements. The rents could also motivate potential entrants to invest in high levels of training in order to gain admittance. This suggests that licensing can raise quality within an industry by restricting supply, raising labor wages, and raising output prices. Increasing prices may signal either enhanced quality due to perceived or actual skill enhancements or restrictions on the supply of regulated workers.

State-regulated occupations can use

political institutions
to restrict supply and raise the wages of licensed practitioners. There is assumed to be a once-and-for-all income gain that accrues to current members of the occupation who are "grandfathered" in, and do not have to meet the newly established standard. Generally, workers who are "grandfathered" are not required to ever meet the standards of the new entrants. Individuals who attempt to enter the occupation in the future will need to balance the economic rents of the field's increased monopoly power against the greater difficulty of meeting the entrance requirements.

Once an occupation is regulated, members of that occupation in a geographic or political

credentialism and educational inflation
). Restrictions would include raising the pass rate on licensing exams, imposing higher general and specific requirements, and implementing tougher residency requirements that limit new arrivals in the area from qualifying for a license. Moreover, individuals who have finished schooling in the occupation may decide not to go to a particular political jurisdiction where the pass rate is low because both the economic and shame costs may be high.

Conversely, efforts can be made at interstate reciprocity, so that a license or a certification earned in one federated state or province qualifies the holder to practice in any of the other states or provinces of the federation, which can lower the overall cost and burden of adequately staffing the profession in all regions. For example, high demand and low supply for nurses or for teachers, in any particular region, can be alleviated if the red tape is reduced, as long as that reduction does not truly harm competence and preparedness.[13]

The effect of not reducing that administrative burden has been measured by a 2017 analysis that found that occupational licensing in different American states reduced between-state migration of individuals in professions with divergent licensing by 36 percent relative to members of other occupations, while workers in nationally licensed occupations showed no evidence of reduced interstate migration.[13] A 2020 follow up study by the same authors found that "the magnitude of the effect can only account for a small part of the overall decline in [interstate migration] seen in recent decades."[14]

Criticism

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."

Adam Smith, The Wealth of Nations

Historically, in the professionalization process by which trades have transformed themselves into true professions, licensing fast became the method of choice in obtaining the occupational closure required by barring competition from entry to the rites and privileges of a professional group. This was initially the preferred route of regulation whether for physicians, lawyers, the clergy, accountants, bankers, scientists or architects. However, licensing has given way to membership of professional bodies, as a means of excluding competition.[15]

Licensure restricts entry into professional careers in

social work, teaching, engineering, surveying, and architecture. Advocates claim that licensure protects the consumer[citation needed] through the application of professional, educational and/or ethical standards of practice. Economist Milton Friedman opposed this practice, believing that licensure effectively raises professional salary by placing limits on the supply of specific occupations. "It is hard to regard altruistic concern for their customers as the primary motive behind their determined efforts to get legal power to decide who may be a plumber."[16]

Restricting entry by licensing is arguably a convenient and effective method of maintaining the high standards, high status and elite privileges of a profession[

free enterprise economy.[17] A 2011 U.S. study estimated that occupational licenses result in 2.8 million fewer jobs, and cost the economy $203 billion per year.[18] The number of jobs requiring a professional licensed represents an increasing fraction of the workforce, from 5% in 1950 to 22% in 2010s.[2] Critics say that low-income consumers, who pay higher prices than required for the level of quality they might require, and low-income job seekers, are disproportionately affected.[19]

In the United States, critics have pointed out that (as of 2018) only 60 professions are licensed by all 50 states, but about 1100 by at least one state, including tour guides, bartenders, and interior designers.

President Trump have tried to pressure state and local authorities to reduce overly burdensome licensing requirements.[18] Excessive requirements include requiring hair braiders to have a full cosmetology license and learn about many unrelated tasks,[2] and requiring casket salespersons to be full licensed funeral directors.[18]

Evidence on the effects

It is well understood that occupational licensing can serve as a barrier to occupational entry resulting in reduced employment, monopoly rents for workers in the occupation, and higher prices for consumers (Friedman, 1962).[21]

Impact on wages

Kleiner and Krueger (2010 and 2013)[22][23] show that after controlling for education, labor market experience, occupation, and other controls, licensing is associated with a 15 to 18 percent wage premium in the labor market. This estimate may partially reflect a premium for higher unmeasured human capital, but it is also consistent and likely in large part due to rents.

A 2016 paper studying occupational licensing in the European Union estimated a wage premium of 4%, with significant variation across professions. [24]

A study from the

national income going to the top 10% of earners.[25][26]

A 2019 NBER paper found that occupational licensing contributed to an average welfare loss of 12 percent.[27]

Impact on employment

The

percent rate if it were unregulated.[30]

For Germany, a study exploits the deregulation of occupational licenses called Meister for 53 occupations in 2004 as a natural experiment. It finds that this policy change increased the propensity to work as self-employed substantially.[3]

Impact on prices

Because it restricts employment, licensing can also lead to higher prices for

consumers. This has been documented in a number of studies including Shepard (1978),[31] Bond, et al. (1980)[32] Cox and Foster (1990),[33] and Kleiner and Todd (2009).[34]

While it is not possible to precisely estimate the effects of substantially reducing occupational licensing at the present time, both theory and the available evidence suggest that such a reduction could translate into significantly higher employment, better job matches, and improved customer satisfaction. Low-income consumers, in particular, would benefit because reduced barriers to entry would reduce the prices of services provided (Shapiro, 1986[35] and Cox and Foster, 1990[36]).

Impact on quality of service provision

Without doing a detailed analysis at the occupation-by-occupation and state level,

economists cannot say which occupations can be justified based on quality-consideration, though studies have been conducted they have found at least in a number of cases at different stages of licensing reduces employment, but does not result in better services (Kleiner, 2013).[37] For example, Kleiner and Kudrle (2000)[38] find that occupational licensing of dentists does not lead to improved measured dental outcomes of patients, but is associated with higher prices of certain services, likely because there are fewer dentists.[39][40]

In the case of midwifery, the introduction of occupation licensing led to substantial reductions in maternal mortality.[41]

Public safety

Many professions involving risk to the public do not require professional licenses. For example,

brain surgeon typically only requires a medical license; the substantial additional training and experience required to perform this operation competently is managed by the hospitals who employ the surgeons.[2]

Restrictions to employment without licensure can prevent people with criminal records or severe mental health issues from working in occupations that require public trust.[

cosmetologist, or massage therapist. Occupations that bring a person into the home might also be screened through licensure, including a chauffeur, landscape architect, or arborist
.

Labour mobility

Individuals practicing a profession in one jurisdiction where no license is required, or where licensing requirements are more lax, face problems with employment when moving to a jurisdiction with more stringent licensing. This can be particularly burdensome on families where one spouse has no choice with regard to location of work (such as military servicemembers), when the second spouse is in a licensed profession. These problems can be avoided by harmonizing laws across jurisdictions, or with reciprocity agreements where licenses from one jurisdiction are recognized in others.[2]

With occupational licensing varying by state, another channel through which licensing can affect employment is through reduced mobility. The patchwork of regulations raises the cost of cross-state mobility for workers in these occupations. This will result in slower adjustment costs to regional economic shocks which can result in higher unemployment.

Impacts on minorities

A 1983 study found that some occupational licensing schemes tended to exclude minorities and disadvantaged populations from entering such trades.[42] However, a more recent study from 2009 found the opposite.[43]

Alternatives

Government regulation

To distinguish various forms of regulation, there are three forms of

government regulation
of occupations:

  • Licensing: Licensing refers to situations in which it is unlawful to carry out a specified range of activities for pay without first having obtained a license. This confirms that the license holder meets prescribed standards of competence. Workers who require such licenses to practice include doctors, lawyers, nurses, civil engineers, and surveyors.
  • State Certification: is generally necessary in order to obtain a license to practice an occupation. The certification requirements include passing of a standardized, state-administered test and proof of minimum experience working under the supervision of a licensed practitioner. New entrants to the occupation can start working as trainees such as "apprentice electrician". Some workers in an occupation may never get certified and licensed but can continue working under the supervision of a licensed person indefinitely.
  • Registration: Registration refers to situations in which one can register one's name and address and qualifications with the appropriate regulatory body. Registration provides a standard for being on the list, but complaints from consumers or improper listing of credentials can result in removal from the list.

Professional certification

In contrast to government regulation, voluntary professional certification can be used to demonstrate competence without the harmful economic effects of legalized occupational barriers. Examples of professional associations and trade associations that provide voluntary professional certification in various fields include:

By country

European Union

Research funded by the European Commission in 2016 estimated that around 22% of workers in the European Union were affected by occupational licensing. This varied significantly between member states, with Germany having the highest proportion (33%) affected, and Denmark the lowest (14%). The same paper also found the 'Health and Social Work' sector generally had the most licensing, but in general there was "considerably large variation" in which professions were licensed in different member states.[44]

In 2005, the EU passed a directive which "enables the free movement of professionals" across Member States, by allowing licensed workers to have their professional qualifications recognised by other countries in the bloc.[45] The European Commission records occupational licensing restrictions across the EU on its Regulated Professions Database. The subsequent 'Proportionality Directive' passed in 2018 requires national governments to assess whether new barriers to practice are proportionate to achieve objectives in the public interest.[46]

United States

In the

union membership
since the 1950s.

union membership estimates are from the Current Population Survey (CPS)).

By 2008 occupational licensing in the U.S. had grown to 29 percent of the workforce, up from below five percent in the 1950s.[47] In contrast, unions represented as much as 33 percent of the U.S. workforce

in the 1950s, but declined to less than 12 percent of the U.S. workforce by 2008.

In April 2019, Arizona became the first US state to recognize out-of-state occupational licenses.[48][49]

See also

References

  1. ^ McGrath, Lee (April 2008). "A Primer on Occupational Licensing". Institute for Justice. Retrieved June 16, 2014.
  2. ^ a b c d e f g On Point: You Need A License For That
  3. ^
    S2CID 154355298
    .
  4. ^ "Occupational Licensing = Protectionism, part 4552". December 27, 2007.
  5. ^ "Knowledge Delivery Systems". Archived from the original on May 29, 2016. Retrieved June 21, 2016.
  6. ^ "No Child Left Behind A Toolkit for Teachers" (PDF). Archived from the original (PDF) on May 2, 2009. Retrieved April 17, 2009.
  7. ^ Doctors facing 'five-year MOTs, BBC News 23 July 2008
  8. ^ Steven Alexander, Alder Hey pathologist ordered removal of children's organs, The Guardian, 17 June 2005
  9. ^ Patients still not protected, BBC News, 1 June 2000
  10. ^ The Richard Neale Scandal, The Clarion, 2006 Archived 2008-09-15 at the Wayback Machine
  11. ^ Jennifer Archer, Why a first degree is not enough for life, Pharmaceutical Journal, 277, October 2006, F14 Archived 2008-12-17 at the Wayback Machine
  12. ^ Guidance on Continuing Professional Development, General Medical Council, UK
  13. ^
    doi:10.3386/w24107
    . Occupational licensure, one of the most significant labor market regulations in the United States, may restrict the interstate movement of workers. We analyze the interstate migration of 22 licensed occupations. Using an empirical strategy that controls for unobservable characteristics that drive long-distance moves, we find that the between-state migration rate for individuals in occupations with state-specific licensing exam requirements is 36 percent lower relative to members of other occupations. Members of licensed occupations with national licensing exams show no evidence of limited interstate migration. The size of this effect varies across occupations and appears to be tied to the state specificity of licensing requirements. We also provide evidence that the adoption of reciprocity agreements, which lower re-licensure costs, increases the interstate migration rate of lawyers. Based on our results, we estimate that the rise in occupational licensing can explain part of the documented decline in interstate migration and job transitions in the United States.
  14. S2CID 226194561
    .
  15. S2CID 143826607
    .
  16. ISBN 0-15-133481-1
  17. ^ Milton Friedman, Medical Licensure, Freedom Daily, January 1994
  18. ^ a b c The Onerous, Arbitrary, Unaccountable World of Occupational Licensing
  19. ^ Why License a Florist?
  20. ^ "OCCUPATIONAL LICENSING: A FRAMEWORK FOR POLICYMAKERS" (PDF). July 2015.
  21. ^ Friedman, Milton. 1962. Capitalism and Freedom. Chicago: University of Chicago Press.
  22. doi:10.1111/j.1467-8543.2010.00807.x
  23. doi:10.1086/669060
  24. ^ Koumenta, Maria; Pagliero, Mario. "Measuring Prevalence and Labour Market Impacts of Occupational Regulation in the EU". European Commission. Retrieved May 8, 2023.
  25. ^ "Do Entry Regulations Promote Income Inequality?". RegBlog. March 17, 2016. Retrieved April 19, 2016.
  26. ^ McLaughlin, Patrick; Stanley, Laura. "Regulation and Income Inequality The Regressive Effects of Entry Regulations" (PDF). Mercatus Center. Retrieved April 19, 2016.
  27. doi:10.3386/w26383. {{cite journal}}: Cite journal requires |journal= (help
    )
  28. ISBN 978-0-88099284-8
    .
  29. computer programmers
    , and glaziers.
  30. ^ Note that this estimate only reflects the differential growth rate between licensed and unlicensed occupations, not levels.
  31. Shepard, Lawrence
    . 1978. "Licensing Restrictions and the Cost of Dental Care." Journal of Law and Economics 21(1): 187–201.
  32. ^ Bond, Ronald S., John E. Kwoka Jr., John J. Phelan, and Ira Taylor Whitten. 1980. Effects of Restrictions on Advertising and Commercial Practice in the Professions: The Case of Optometry. Washington, DC: Federal Trade Commission, Bureau of Economics.
  33. ^ Cox, Carolyn, and Susan Foster. 1990. The Costs and Benefits of Occupational Regulation. Washington, DC: U.S. Federal Trade Commission, Bureau of Economics.
  34. ISBN 978-0-226-03288-7
    .
  35. doi:10.2307/2297722
  36. Washington, DC: U.S. Federal Trade Commission
    , Bureau of Economics.
  37. ISBN 978-0-88099-459-0
    .
  38. doi:10.1086/467465
  39. ^ For additional examples see Carroll and Gaston (1981).
  40. doi:10.2307/1058155
  41. S2CID 225714160
    .
  42. S2CID 145333206
    . Retrieved August 3, 2021.
  43. S2CID 222332403
    .
  44. ^ Koumenta, Maria; Pagliero, Mario. "Measuring Prevalence and Labour Market Impacts of Occupational Regulation in the EU". European Commission. Retrieved May 8, 2023.
  45. ^ https://single-market-economy.ec.europa.eu/single-market/services/free-movement-professionals/recognition-professional-qualifications-practice_en
  46. ^ https://eur-lex.europa.eu/EN/legal-content/summary/proportionality-test-for-new-regulation-of-professions.html
  47. ^ Jenni Bergal (January 30, 2015). "A License to Braid Hair? Critics Say State Licensing Rules Have Gone Too Far". The Pew Charitable Trusts. Retrieved February 1, 2015.
  48. ^ Cooper, Jonathan (April 10, 2019). "Arizona becomes 1st to match out-of-state work licenses". The Washington Post. Archived from the original on April 11, 2019. Retrieved April 12, 2019.
  49. ^ "Arizona HB2569 | 2019 | Fifty-fourth Legislature 1st Regular". LegiScan. Retrieved April 12, 2019.

Further reading

External links
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