Arnold Kling  

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Alan B. Krueger reports on Morris M. Kleiner's research on occupational licensing.


He provides much evidence that the balance of occupational licensing has shifted away from protecting consumers and toward limiting the supply of workers in various professions. A result is that services provided by licensed workers are more expensive than necessary and that quality is not noticeably affected.

...Although the exact number of workers in jobs that require a license is not available, Professor Kleiner conservatively estimates that 20 percent of workers in 2000 were in an occupation that was covered by a state licensing requirement, up from 5 percent in the 1950's.


Last year, I also mentioned Kleiner's work.

Since I have an interest in health care economics, my pet peeve in this area is physical therapists. In Maryland, we are headed toward requiring PT's to obtain what amounts to a doctorate, even though they already are scarce.

If one were trying to improve health care, would the requirements for being a physical therapist be stricter or more flexible than what they have been?


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CATEGORIES: Public Choice Theory



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The author at The Club for Growth Blog in a related article titled Friday's Daily News writes:
    Choice For Me, Not For You - Mike Franc, Townhall.com Government Ain’t Us - Don Boudreaux, Cafe Hayek Silence of the Hams - Colorado Springs Gazette Editorial New York’s Union Mob - New York Post Editorial 65% Solution is a... [Tracked on March 3, 2006 10:33 AM]
COMMENTS (15 to date)
spencer writes:

It is interesting that when you look at the details in his work you still see growing income inequality. The groups with the highest wages in 1990 also were the same that had the largest income gains over the next decade.

The contrast between Dentist and hairdressers was very interesting. Employment in both fields grew by under 1% from 1990 to 2000 versus a national average of 13%. They were the extremes in his study. But while this allowed dentists wages to leap 92.6% versus 47.1% for the national average, for hairdressers the gain was only 39.3%, or less then the national average. At the same time the supply of Doctors expanded by 23%, almost double the national growth rate, their wages also increased by 70%. The same with lawyers. They had a 25% growth in employment and a 59% growth in wages.

When you actually look at the data in his study it does not give overwhelming support for his conclusions.

meep writes:

I prefer certification (by private standards) over licensing. But then, I'm in the financial biz, which has lots of different certifications you can achieve.

Steve Podraza writes:

Spencer,

I don't know why you post here, but one possible reason might be to offer readers like me a perspective different from the usual libertarian fare. By "readers like me" I mean young impressionable types, the type that could yet be saved from the likes of Kling and Caplan and brought over to the side of good. Now again, this may not be the reason you post here, but if it is, you are doing a terrible job.

I've followed your comments for months now and your routine is always the same. You offer up some numbers which appear to contradict the libertarian's theory and say "see, so you're wrong"

Never (or only very rarely) do you ever suggest an alternative explanation. These libertarians are offering more than numbers, they are offering explanations, something I never get from you. Maybe their explanations are wrong, but if so, WHY are they wrong? It seems to me like increasing the cost of entry into a field by way of professional licensing requirements WOULD reduce the number of professionals in that field relative to what it would otherwise be. And it seems to me that this WOULD increase the going rate of those professional's services relative to what it would otherwise be. And it seems to me that professionals, realizing this, WOULD organize in order to create these results in this way. Supply and demand is the explanation for how this works. Are you honestly suggesting any of this is not true?

What is your explanation for why it doesn't? You don't believe in supply and demand? What is your alternative explanation?

Joe Kristan writes:

Yes, I live by rent seeking, I'm a tax professional. Please don't hate me.

I wouldn't mind breaking into the acadamic dodge someday; the urge gets especially strong this time of year. Unfortunately I would have to overcome the credentialing problem by spending three years not earning a living, but getting a Ph.D so I can teach what I've been doing for 20 years (while my actual skills rust). Sigh...live by rent-seeking, die by rent-seeking.

Zac writes:

Doctors aren't any better at treating emergency patients than paramedics or registered nurses. Does anyone think a physical therapist with a doctorate is really any better than one without?

In fact, I'll go so far as to say that if I was a potential consumer of physical therapy (which I have been) and the supply of labor wasn't controlled by licensing laws (and rather had a system of private certification to signal quality, as we typically advocate), I would NEVER contract the services of a physical therapist with any sort of "education" besides a basic course. They're sure to charge more (they need to recover their investment in education) and they're nearly sure to be of worse quality than someone who just has job experience.

I'd be more likely to make a snap-judgment based on first impression than pay much attention to certifications in this case. The most important thing to look for in a physical therapist is someone you feel you can work with closely - I'd be looking for an assertive, yet understanding personality, and at least tolerable breath. Someone attractive. The kind of person who, if they knew they'd have to spend 8 years in school to be a physical therapist, would choose to do something else.

Anonymous writes:

If one were trying to improve health care, there should be no requirements at all. Everyone has the right to offer whatever health services they wish at whatever price. Any infringement on that is an infringement of their absolute right to do whatever they want with their property. The free-market would ensure consequences are automatically maximized, and Maryland would have a renaissance in its health care industry.

Matt writes:

Anybody else think that Krueger's comment that life-saving professions are on stronger theoretical grounds for licensing has it exactly backwards??

Licensing in low-stakes, low-skill positions could ensure some regularity of service without increasing price too high (precisely because it is low-stakes and low-skill); the consumer is saved from acquiring information necessary to make a good choice and maybe (maybe) the transaction cost averted is large enough to justify.

For doctors and physical therapists, licensing will increase the wage more, but because of the high-stakes nature of the job the consumer will not trust just a license and will undergo the process of acquiring the information necessary to ensure quality service.

I don't know what's going on with lawyers.

Oh, and Spencer I like your posts.

Robert writes:


Licensing in low-stakes, low-skill positions could ensure some regularity of service without increasing price too high (precisely because it is low-stakes and low-skill); the consumer is saved from acquiring information necessary to make a good choice and maybe (maybe) the transaction cost averted is large enough to justify.

Personal services with low per-unit costs don't need licensing to ensure quality, because the same customer is likely to seek out the service repeatedly, and if they didn't like the service they got the last time, they can go elsewhere the next time.

Matt writes:

Robert,

That is interesting. I wonder how often it is true. For example, clearly the cab supply in Washington and New York is artificially restricted (and the price regulated). But in an impersonal and anonymous service I gain some, but clearly not all, of that lost surplus back by not having to discriminate between seemingly identical cabs that drive by (even though I am a repeat customer).

The case for licensing is difficult in many, if not most, professions. I was just making the point that the case seems nonexistent for high-wage professions.

James writes:

Spencer,

You may have found an important error, or not. If you did, I've love to know, but I really don't understand your approach to empirical data. I count a total of 10 descriptive statistics in your post above, zero inferential statistics. How you draw inferences from such a cluster of numbers is a puzzle to me.

But let's put away the problems of sample size, inference, etc. Kleiner's position (from the NYT article) is that "there is little to show that occupational regulation has a major effect on the quality of service received by consumers." How on earth do your claims about inequality have any relevance, positive or negative, to Kleiner's claims?

I don't mean for this post to be entirely critical though. To be sure, nothing pleases me more than the honesty displayed by a lefty criticizing someone else for arguing against political institutions that consolidate economic power by restricting people's right to work.

Fazal Majid writes:

The average US general practicioner will charge well over $100 for a rushed consultation. The average French GP will charge EUR25, or 1/3 the price of the American MD, usually with better quality of service to boot.

Tell me again the numerus clausus in US Med Schools is not a cartel run by the AMA (one of the most influential lobbies on Capitol Hill, may I add). And think how much worse it would be were it not for the large numbers of MDs we import from places like India or the Philippines.

John Thacker writes:

Professor Kleiner conservatively estimates that 20 percent of workers in 2000 were in an occupation that was covered by a state licensing requirement, up from 5 percent in the 1950's.

Certainly this balances (and should be balanced by) the simultaneous decrease in union membership. Both act to restrict the supply of workers in a certain job (and arguably to increase skill per worker). Is it safe to say that in some sense they are substituting for each other?

John Dewey writes:

"Doctors aren't any better at treating emergency patients than paramedics or registered nurses."

I think that both paramedics and emergency room physicians are specialists. Each has particularly responsibilities, only some of which overlap. Although paramedics can administer drugs, I don't think they have the training required to safely prescribe drugs. Paramedics are trained as first responders to stabilize patients and prevent them from dying. Emergency room physicians have many more responsibilities than that.

spencer writes:

James -- the claim was that licencing limits supply and damages services. But all I did was point out that 3 of the 4 professions that he made the claim for experienced employment growth of double the national average. But if employment in a field is growing at double the national rate of employment one should question the claim that the licence requirement is limiting supply. For all that i can see in the data, the fact that accountants, doctors and lawyers earn above average wages may more then offset the restrictive impact of the licencing requirement and provide us more and better service. See, supply and demand does work. But maybe what we are seeing is higher prices increasing supply and this has nothing to do with the licence requirements.

I don't think it requires a lot of complex statistical analysis to see that the growth rate is roughly double the national average.

The study may be right, but the data I saw did not support the conclusion.

Godfrey Harrison writes:

Not economics as a professional would see it BUT:

In 1993, as President, I saw through the Hong Kong Psychological Society's introduction of a new Code of Conduct. {The HK Government ensured the expense and difficulty of getting any occupation's practitioners restricted to those having recognised & stipulated qualifications.} Requiring that applicants for Membership accepted a Code of [professional] Conduct, held Society accepted qualifications and had Society approved experience was exisitng members' response to not having the HK Government license, and so restrict, those who could legally practise as a professional psychologist in HK ~ a response overwhelmingly many members favoured.

Two Hong Kong mental health care professionals compiled a directory of such people, including professional clinical psychologists. One person who went unlisted in the directory had a thriving practice and, outside his premises, a plate mentioning his doctorate (in Psychology) from a university in California, and his being a psychologist whom the State of California recognised. The directory compilers found the University, the plate mentioned, acknowledged its former student had taken introductory psychology courses, but no more; the relevant State body denied his claimed professional recognition. When the compilers visited the man whose claims they had checked he said, in effect, "I've got loads of satisfied clients who recommend others with psychological problems to come to me. They pay, they come until they're better, they get what they want. Hong Kong has no legal restriction on who may call themselves 'a psychologist.' The plate does cite qualificatins I don't have but it may help clients be confident in me. I do a good job; I care about my clients. If I didn't how come I've been busy so long and can afford this place to work from? For all the plate's not honest my practice is still good, my clients are content. If you don't like it do something about it."

In the nineteen nineties HK had a shortage of practising clinical psychologist with, say, an MSc (ClinPsych) HKU or similar presitge qualification. I disapprove of the lies the man I cite had told. But all the evidence - more than he told the directory compilers - suggests he earned his fees and helped, at least a good many of his clients pretty much as well as did his competitors with qualifications and experience the Society recognised.

(As my work on a Code of Conduct shows) I have supported the registration of psycholgists. Now, while wishing people were honest, I wonder about the usefulness and protection that are the claimed justifications of most of the procedures, codes of conduct, and professional and government requirements in, say, U.S.A. My wishing people were honest works two ways!

I suspect my doubts might fit some other occupations that have brought about the licensing of their practitioners.

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