In the 1950s, only about 5% of American workers needed a government license to do their job. By the early 2000s, that figure had climbed to roughly 25%, and it has stayed there ever since. Almost every occupational licensing study of the past 20 years highlights an important point: licensing, which was once a narrow tool reserved for doctors, lawyers, and a handful of skilled trades, now extends to cover a wide range of positions, from genetic counselors to Uber drivers.
This is all while union membership has declined from roughly a third of the workforce in the 1950s to about 10% today, almost the mirror image of the rise in licensing over the same stretch. When unions were pervasive, they facilitated workers’ bargaining power and enabled unionized employees to obtain higher wages. Deindustrialization and political opposition has undermined labor unions power. The relationship between decreasing unionization and rising licensing requirements is not necessarily causal, but licensing can restrict competition and extract higher pay, potentially from consumers. Unlike a union, associations representing an occupation that oversee occupational licensing requirements do not have to bargain with an employer or win a certification election. Instead, it has to persuade the state legislature and governor that the public needs protecting. Licenses are often specific to a state: a lawyer licensed in one state cannot necessarily practice in another, further limiting employment.
The increasing licensing requirements reflect an array of American legal and labor institutions, but are licensing requirements unique to the United States? Europe has completed one survey of occupational licensing showing about 22 percent of the EU has attained an occupational license. However, most of the developing world has never been assessed. We attempt to address that in a new paper, using existing surveys and fielding new nationally representative ones in 44 countries, including several, like India, Argentina, and Nigeria, where no comparable licensing data had ever existed.
We find that 42.5% of Indian workers hold a job that legally requires a government-issued license, the highest rate in our entire sample, ahead of every country in Europe and well ahead of the 28% figure for the U.S. South Africa is close behind at 40.2%. In contrast, licensing-averse Denmark sits at just 14%, whereas wealthier nations such as Germany have almost 33% of their workforce requiring an occupational license.
The original case for occupational licensing was about bridging information asymmetries and minimum quality standards (if you’re seeing a doctor, you want to know that they have the requisite skills and experience, so they don’t put you or your community at risk of, for example, a communicable disease). However, the growth of occupational licensing suggests that it has expanded to occupations such as hair braiding and interior design that do not threaten the public.
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Jon Hartley is a regulatory policy fellow at the Archbridge Institute, a Ph.D. candidate in economics at Stanford University, and a Hoover policy fellow at the Hoover Institution. He specializes in finance, labor economics, and macroeconomics. He received his M.P.P. from the Harvard Kennedy School, his M.B.A. from the Wharton School at the University of Pennsylvania, and his B.A. in economics and mathematics from the University of Chicago. He hosts the Hoover Institution podcast Capitalism and Freedom in the Twenty-First Century.
Morris M. Kleiner, PhD, is a labor policy fellow at the Archbridge Institute and one of the world’s leading labor economists. He is a professor at the Humphrey School of Public Affairs at the University of Minnesota and a research associate at the National Bureau of Economic Research. His work covers the role of institutions in labor markets and employment issues in enhancing productivity, with a specific focus on the role of occupational licensing for workers and consumers in the United States and other nations. Dr. Kleiner earned his Ph.D. in economics from the University of Illinois at Urbana-Champaign.
Economics of Flourishing
In the 1950s, only about 5% of American workers needed a government license to do their job. By the early 2000s, that figure had climbed to roughly 25%, and it has stayed there ever since. Almost every occupational licensing study of the past 20 years highlights an important point: licensing, which was once a narrow tool reserved for doctors, lawyers, and a handful of skilled trades, now extends to cover a wide range of positions, from genetic counselors to Uber drivers.
This is all while union membership has declined from roughly a third of the workforce in the 1950s to about 10% today, almost the mirror image of the rise in licensing over the same stretch. When unions were pervasive, they facilitated workers’ bargaining power and enabled unionized employees to obtain higher wages. Deindustrialization and political opposition has undermined labor unions power. The relationship between decreasing unionization and rising licensing requirements is not necessarily causal, but licensing can restrict competition and extract higher pay, potentially from consumers. Unlike a union, associations representing an occupation that oversee occupational licensing requirements do not have to bargain with an employer or win a certification election. Instead, it has to persuade the state legislature and governor that the public needs protecting. Licenses are often specific to a state: a lawyer licensed in one state cannot necessarily practice in another, further limiting employment.
The increasing licensing requirements reflect an array of American legal and labor institutions, but are licensing requirements unique to the United States? Europe has completed one survey of occupational licensing showing about 22 percent of the EU has attained an occupational license. However, most of the developing world has never been assessed. We attempt to address that in a new paper, using existing surveys and fielding new nationally representative ones in 44 countries, including several, like India, Argentina, and Nigeria, where no comparable licensing data had ever existed.
We find that 42.5% of Indian workers hold a job that legally requires a government-issued license, the highest rate in our entire sample, ahead of every country in Europe and well ahead of the 28% figure for the U.S. South Africa is close behind at 40.2%. In contrast, licensing-averse Denmark sits at just 14%, whereas wealthier nations such as Germany have almost 33% of their workforce requiring an occupational license.
The original case for occupational licensing was about bridging information asymmetries and minimum quality standards (if you’re seeing a doctor, you want to know that they have the requisite skills and experience, so they don’t put you or your community at risk of, for example, a communicable disease). However, the growth of occupational licensing suggests that it has expanded to occupations such as hair braiding and interior design that do not threaten the public.
Continue reading at ProMarket.
Jon Hartley
Jon Hartley is a regulatory policy fellow at the Archbridge Institute, a Ph.D. candidate in economics at Stanford University, and a Hoover policy fellow at the Hoover Institution. He specializes in finance, labor economics, and macroeconomics. He received his M.P.P. from the Harvard Kennedy School, his M.B.A. from the Wharton School at the University of Pennsylvania, and his B.A. in economics and mathematics from the University of Chicago. He hosts the Hoover Institution podcast Capitalism and Freedom in the Twenty-First Century.
Morris Kleiner
Morris M. Kleiner, PhD, is a labor policy fellow at the Archbridge Institute and one of the world’s leading labor economists. He is a professor at the Humphrey School of Public Affairs at the University of Minnesota and a research associate at the National Bureau of Economic Research. His work covers the role of institutions in labor markets and employment issues in enhancing productivity, with a specific focus on the role of occupational licensing for workers and consumers in the United States and other nations. Dr. Kleiner earned his Ph.D. in economics from the University of Illinois at Urbana-Champaign.
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