Arnold Kling  

Licensing Rents

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Morris M. Kleiner writes,


Even in the 1950s, licensing covered less than 5% of the American workforce. Now more than 20% of the U.S. workforce is covered by state licensing laws...prices in regulated occupations have increased more--and the earnings of practitioners have become higher--than in comparable occupations with similar levels of human capital and experience.

This appeared in the op-ed section of the weekend Wall Street Journal, but I'll be darned if I can find it on line anywhere.

UPDATE. Spencer, in a comment, gave this link to the article. Thanks.
Here is an article by Kleiner that is available on his web site.



COMMENTS (15 to date)
John Thacker writes:

Only 5% were covered by licensing in the 1950s-- but a much greater percentage were covered by unions than now, and union regulations and work rules can be similar to licensing regulations in many ways. That brings up a question-- how are they similar and how are they different, and in what way, if any, is the increase in licensing related to the decrease in unions? Note that the tech industry, famously non-unionized, has a wealth of certifications although not so much state licensing.

daveg writes:

Ian Fletcher has recently written in the American Conservative that somewhat recent econmic models have been developed that show "free trade" is not beneficial in some circumstances.

Are you aware of such studies and, if so, I would be interested in your comments.

spencer writes:

This is the link to the article you are looking for

http://online.wsj.com/article/SB112933766245169532.html?mod=opinion_columns_featured_lsc

James writes:

Daveg,

Fletcher's argument in stuff like this seems to be that some individuals want the wrong things, so other individuals ought to interfere, perhaps forcibly. I reckon that there could be some models to show that this interference would be beneficial if:

- the "others" knew what was best for the "some"
- the "some" really do want the wrong things
- the "others" are not easily corruptible in their position as interferers
- if the benefit or harm is measurable as the model claims
- the model's normative assumptions are correct.

Those are some pretty steep theoretical assumptions for one of these so-called "post autistic" or "reality based" economists.

daveg writes:

Thanks for you response.

At some point I think a few entries on this topic would be interesting.

To me 1-3 seem highly possible in *certain* situations for limited periods of time. Certainly China's leaders have done well over the last ten years for their people. Could they continue it for over 50 years? Possibly, but less likely.

That said, there do seem to be examples of protectionist countries doing well - with Japan being a fine example.

James Erlandson writes:

daveg:

... there do seem to be examples of protectionist countries doing well - with Japan being a fine example.
Between 1991 and 2003, (Demographia) Japan's GDP per capita at purchasing power parity has failed to grow as rapidly as the US', falling from 84% (of US) in 1991 to 73% (of US) in 2003.
daveg writes:

I notice you pick the high water mark for Japan - 1991 - as you start year.

Starting at 1987 you see that Japan is in virtually unchanged in this regard circa 2001 (~.73 of the US).

Clearly Japan and the US have taken two completely different paths to achieving the same level of growth. One has to wonder if all the social ramifications of "free" trade are worth virtually identical growth to a non-free trade country.

I also note that Japan is going through a boom right now, much of it due to skyrocketing exports to China. The next 5 years should be interesting.

Roger McKinney writes:

Japan, China, Korea and Taiwan are constantly used as examples of countries that used restricted trade, usually to protect infant industries, to promote economic development. But nobody asks why this strategy failed for all the South American countries that tried it in the '60's and '70's. We should ask "Did Japan, China, Korea and Taiwan grow because of trade protection, or in spite of it?" If you ignore the very high level view (like from the moon), and examine the particular industries that get protection, in most cases you'll find, as McKinsey did, that protected industries are a drag on growth and most growth comes from unprotected industries.

James Erlandson writes:

daveg:

And in the period 1987-2003, the US population grew by 20%, Japan's only 4.3%. So in absolute numbers, the US economy is far ahead of Japan's in your selected period.

The US policies on immigration are very different from Japan's and the effects are more interesting, complex and far reaching than those of pure economic protectionism. Economics meets Sociology.

Chris Bolts writes:

[quote]Ian Fletcher has recently written in the American Conservative that somewhat recent econmic models have been developed that show "free trade" is not beneficial in some circumstances.[/quote]

A similar view was taken by The Economist a few months ago. It reported on a study of the effects of the removal of trade barriers on rich countries and poor countries on agricultural farmers and consumers in sub-Sahara Africa. It showed that when tariffs, quotas and subsidies were reduced in all countries as recommended by the WTO, it had an adverse effect on agricultural farmers and consumers in sub-Sahara Africa because trading at the world price for agricultural goods tended to be too high and had a negative impact on growth in the area. The argument it appeared to be making is that in the poorer countries tariffs should be kept at its normal levels and gradually decreased at a rate less than that in the richer countries to offset the impact of being exposed to quickly to the world price. It kinda makes sense: the main beneficiaries from freer trade would be people who lived in richer countries as they would be able to get goods cheaper, but as for poorer countries they need time to adjust to being exposed to fluctuating world prices and protection is favored at least in the short run.

daveg writes:

Mr. Erlandson,

Population growth is really a side show, isn't it?

Whose to say if Japan would have grown more or less with greater population growth?

Whose to say whether the per capita income in America would have grown more without the increase in population?

The data is what the data is. It is unproductive to speculate what the growth rate "would have been" had the populations of the two countries grown differently.

James writes:

Daveg,

What conclusions do you think are warranted when you say, "That said, there do seem to be examples of protectionist countries doing well - with Japan being a fine example."? What assumptions are you making about causation? How are you measuring opportunity costs? How are you measuring benefits?

In my own opinion, I'd suggest that Japan's relative prosperity was in spite of -- not because of -- protectionist policies. The opportunity cost in this case are the additional prosperity that the Japanese would have enjoyed under a less protectionist system.

At any rate, the data cannot prove or rebut either of these claims since there are (and can be) no data on opportunity costs or causation, so it's an interesting question as to why people would point to the data and then assert that they support any conclusion at all about the effects of protectionism.

daveg writes:

I set my sights very low - I only wish to show that it is possible to achieve economic growth without a religious commitment to "free trade."

The destructive fallout from free trade is substantial. We should be sure that it is worth it, and that we have the right "amount" of free trade.

I would also be interesting to comparing median income of the US with other low free trade countries. Sure the average is similar, but you get the feeling that the middle and lower class in the US are not doing as well as the middle and lower class in Japan.

Could it be that the average in the US is pulled up by a small group of high earners?

BTW, Japan is also an excellent example of a country acheiving reasonable econmic growth without importing poverty, as we also do here in the US and are told by many that we are better for it.

James writes:

Daveg,

You write "I only wish to show that it is possible to achieve economic growth without a religious commitment to 'free trade.'"

I'll do you one better. Economic growth is possible even with a secular commitment to no trade. A subsistence farmer who produces more than he consumes will experience some growth. But so what? Why settle for just *some* growth? Ah, yes. Now I remember. It's to accumulate and preserve cash balances. Personally, I like to draw down my cash balances to obtain goods every now and then (and I admit to being complacent about the fact that doing so enriches the seller every time), but maybe I'm one of the people who wants the wrong things and needs someone else to interfere with my economic activity.

Incidentally, you never answered my question: How do you measure the opportunity costs of protectionism?

daveg writes:

Let me restate:

I only wish to demonstrate that it is possible for a more protectionist state (Japan) to achieve the same economic growth as a less protectionist state (US), as was shown in the GDP per capita growth from 1987 to 2001 or so.

As to the opportunity cost, I can safely say it is zero relative to the US, as the growth rate is the same.

And I can also say that the cost of free trade to quality of life is something more than zero, as Japan suprasses the US in all sorts of quality of life metrics such as crime, education, poverty, etc.

So, using that math US style trade comes up short relative to Japan style trade.

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