Over the last few decades, the job market in the U.S. has changed in many ways. But one trend that hasn’t received nearly enough attention is the steady rise of occupational licensing: more and more jobs are requiring workers to be licensed to enter the profession.
In the 1950s, approximately 5% of U.S. workers had an occupational license, meaning they completed additional schooling or training (and paid the necessary fees) and passed an exam to be licensed to practice the profession in a certain state. Today, the Bureau of Labor Statistics estimates that 23% of full-time workers have a license. (For comparison, fewer than 3% of workers in the U.S. are paid at or below the federal minimum wage and fewer than 11% of workers currently belong to a labor union.) This uptick in licensed workers is the direct result of the growth of occupational licensing laws. In the early 1990s, 800 occupations required licenses in at least one state. In 2016, that number increased to approximately 1,100 occupations.
Occupational licensing is the most stringent type of occupational regulation as it prevents individuals from working in a profession without meeting government mandated entry requirements. It is different from other types of regulation, like certification laws, which protect job titles (e.g., chartered financial analyst) but do not prohibit uncertified work, and registration, which require workers to provide some personal information to the government.
States were granted the right to license occupations following the Supreme Court’s ruling in Dent v. West Virginia (1889). The case challenged the constitutionality of West Virginia’s new licensing law for physicians, and the Supreme Court ruled that states have the authority to set entry standards for a subset of occupations that may protect citizens from the “consequences of ignorance and incapacity, as well as of deception and fraud.” Today, licensing is demanded by nearly all health care professions (including massage therapists in most states), but it has also spread to occupations like tattoo artists and body piercers, music therapists, and even florists in Louisiana.
Proponents of occupational licensing claim that licensing enhances the quality of services delivered to the public. And by serving as a signal to the public that the practitioner has met a minimum quality standard, or by building the human capital of the practitioner, licensing may increase demand for the newly licensed service.
Critics of licensing, however, note that professional associations lobby for occupational licensing out of self-interest, to restrict competition and increase earnings. They say that, instead of serving the public good, licensing harms consumers by restricting access to professional services.
When testing these theories, researchers have found evidence of the costs of occupational licensing on workers and consumers. For example, a report published by the Obama White House in July 2015 highlighted certain costs, such as higher prices for consumers and fewer job opportunities for aspiring workers. Another study found that licensing may be increasing the cost of health care as a result of restricting licensed nurse practitioners from working to the full extent of their medical training. (For example, some states allow nurse practitioners to work autonomously, other states require direct physician supervision of nurse practitioners.) Similar findings have been produced for physician assistants and nurse midwives. None of these studies found evidence of improvements in health outcomes as a result of more restrictive licensing laws. At best, the evidence that stricter licensing improves quality in general is mixed.
What about licensing’s impact on earnings? Although there is growing evidence that licensing increases wages of licensed practitioners nationally, we know less about how occupational licensing specifically affects workers in low- or moderate-wage occupations. In a new research paper (co-authored with Anna Rivers, then of the Mercatus Center, a free-market-oriented research center at George Mason University), we estimate the effect that state licensing of opticians has had on optician earnings and the quality of their services. By focusing on this profession, we can find out more about the specific impact of licensing requirements (such as fee and education requirements) on low- and moderate-income workers.
Optician Licensing in the U.S.
Opticians are technical practitioners that dispense and fit contact lenses and eyeglasses. South Carolina was the first state to pass optician licensing legislation in 1917. (Optometrist and optician professional associations were the primary proponents of optician licensing.) Today, 21 states require opticians to obtain a license to work. However, like many other licensed occupations, state requirements for opticians vary tremendously. In 2012, the fees associated with obtaining an optician license ranged from $70 in Vermont to $850 in Florida. Education and training ranged from 0 days in California to 1,128 days in Nevada. The number of exams that opticians must pass also varies from just one in North Carolina and Vermont to four separate exams in Connecticut.
We took advantage of differences in when states passed licensing legislation to better understand the effect that licensing has had on optician earnings. We utilized a data set of 13,577 individual opticians observed between 1940 and 2000 (taken from decennial U.S. Census data) and 2001 to 2012 (taken from American Community Survey data). We controlled for other factors (such as age, race, education, and geographic location) that might affect optician earnings in our empirical analysis.
In the year after a state passes legislation mandating that opticians be licensed, optician earnings increase an average of 12%. Using the mean annual earnings of an unlicensed optician as a baseline, this would amount to an extra $3,600 each year. We also estimated the effect of each additional required exam and each additional 100 days of required education on optician earnings — on average, a 5.4% and 2.0% increase, respectively, in optician earnings.
Our dataset also allowed us to explore whether this licensing premium evolves over time. We wanted to know if licensing immediately increases wages or takes some time to appear. We found evidence that the effects of optician licensing are most pronounced in the first five years immediately following the adoption of licensing legislation — perhaps as much as a 16.9% more then what the average optician made before the licensing law passed. This result is different from another recent study that analyzed the effects of occupational licensing for 13 universally licensed occupations (not including opticians) and found that the largest wage premiums of occupational licensing materialized after 10 years. One reason for this different result may be that grandfather provisions in the laws (which allow existing practitioners to bypass the new requirements of licensing legislation) were not as prevalent for opticians relative to other licensed occupations.
While our analysis cannot definitively establish the reason behind increased earnings for opticians following licensing, this effect is not that surprising if you think about the forces of supply and demand in the labor market. If aspiring opticians suddenly have to complete additional levels of education, pay fees, and pass exams to get licensed, it’s more expensive to enter the profession. As a result, fewer people may opt to become opticians, decreasing the labor supply, and increasing earnings for opticians. It’s also possible that opticians are simply charging more for their services, to recoup the additional costs of becoming an optician.
Of course, another explanation for increased earnings may be that licensing increased optician quality. So our next task was understanding the effects of licensing on the quality of optician services. Because quality can be subjective, we attempted to measure it indirectly. First, we compared the premiums for malpractice insurance for opticians in licensed and unlicensed states in 2014. If licensing were improving the quality of optician services, we’d expect to observe lower malpractice insurance premiums in licensed states. We found no evidence of higher premiums in unlicensed states. In fact, the only state with a $25 greater annual premium than the average was Virginia—a state that licenses opticians.
Second, we examined participation in Texas’ voluntary certification program for opticians. Under Texas law, opticians could choose to pass two exams and pay a $105 fee to the state to obtain certification and use the term “certified optician.” Opticians could work in Texas without this certification, but they couldn’t use this protected title.
We would expect that opticians in Texas would obtain certification if they wanted to distinguish themselves on quality. But we found that less than 3% of practicing opticians in the state chose to participate in the program in 2014, which suggests that most weren’t particularly concerned with demonstrating quality to consumers. Interestingly, the certification law for Texas was removed in 2015.
This evidence is far from definitive, but it supports the view that increases in optician earnings due to licensing are driven by factors other than enhanced quality. These findings are consistent with surveys of the existing literature that find little evidence that occupational licensing is associated with improvements in the quality of service delivered to consumers.
For consumers of vision correction services, higher optician wages means higher out-of-pocket costs or higher premiums for vision insurance. This result is consistent with the findings of the Obama administration report linking occupational licensing with higher professional service prices. And for aspiring opticians looking to enter the field, the costs associated with occupational licensing may be a disincentive.
As new data sources on the scope of occupational licensing become available, we need to keep a closer eye on this important labor market institution. The percentage of workers directly affected by occupational licensing continues to grow. A careful consideration of the costs and benefits of occupational licensing is warranted.
from HBR.org https://ift.tt/2JtNqo1
