Occupational Licensing Reduces Mobility

by on February 29, 2016 at 7:25 am in Economics, Law, Medicine | Permalink

Brookings has a good memo on four ways occupational licensing reduces both income and geographic mobility. Here is point 1:

Since state licensing laws vary widely, a license earned in one state may not be honored in another. In South Carolina, only 12 percent of the workforce is licensed, versus 33 percent in Iowa. In Iowa, it takes 16 months of education to become a cosmetologist, but just half that long in New York. This licensing patchwork might explain why those working in licensed professions are much less likely to move, especially across state lines:

mobility-and-occ-licThe graph, is from the excellent White House report on occupational licensing. The first blue column says that workers in heavily licensed occupations are nearly 15% less likely to move between states than those in less licensed occupations–this is true even after controlling for a number of other variables that might differ across occupations and also influence mobility such as citizenship, sex, number of children, and education.

The orange column provides another test. An occupational license makes it difficult to move across states but not within a state. If workers in licensed occupations had lower rates of mobility for some other reason than the license then we would expect that workers in heavily licensed occupations would also have lower rates of within state mobility. The orange bars show that workers in heavily licensed occupations do have slightly lower rates of within state mobility but not by nearly enough to explain the dramatically lower rates of between state mobility.

Lower rates of worker mobility mean that workers are misallocated across the states in a similar way that price controls or discrimination misallocate resources and reduce total wealth. Lower rates of workforce mobility also increase the persistence of unemployment.

To its credit, the Federal government is investing in efforts to make licenses more portable including encouraging “cross-State licensing reciprocity agreements to accept each other’s licenses.” Cross-state reciprocity agreements sound like an excellent idea.

1 required February 29, 2016 at 7:42 am

Guilded age again?

City guides disapper to allow statewide licensing. Of course, this means that states are taking away city rights, yet complain about the federal government taking their rights.

2 anon February 29, 2016 at 10:03 am

I believe EMT licensing is by county in California. Fwiw.

3 required February 29, 2016 at 2:43 pm

That’s not by city as in the guilded age with all the guilds loyal to their city.

4 rayward February 29, 2016 at 7:46 am

I’ve commented before about license reciprocity for physicians, specifically with respect to telemedicine (which allows physicians to be located in one state and treat patients located in another state). The model telemedicine law includes a reciprocity provision (i.e., if State A allows physicians in State B to treat patients in State A via telemedicine then State B will provide reciprocity and allow physicians located in State A to treat patients in State B via telemedicine). Unfortunately, reciprocity hasn’t induced states to adopt the model law, mainly because not all states are created equal. For example, physicians in a state with lots of patients, say, Florida, aren’t enthusiastic about allowing physicians in, say, Georgia, to poach their patients in Florida.

5 rayward February 29, 2016 at 8:04 am

To be fair, resistance from Florida physicians to he model law is based on more than greed. For example, should a physical exam (i.e., in person) of the patient be required before the out-of-state physician can prescribe a narcotic? A good case can be made that it should. Of course, a good case can be made by any occupation that a licensed professional in one’s state should be required in order to design a bridge in that state, operate a crane in that state, prepare and dispense medicinal drugs in that state, and on and on.

6 nyuwashsq February 29, 2016 at 9:28 am

Of course, a good case can be made for eliminating all government occupational licensing.

Serious unintended consequences (like this blog topic) always accompany government licensing. And the hidden, malicious ‘”intended consequences” of licensing (like restriction of competition) have long been recognized.
Regulatory-Capture is also a huge problem in all government licensing bureaucracies.

Government licensing overall is unreliable in ensuring quality in occupational practice. There are better methods for ensuring quality for consumers. But the political trend is always for more and stricter government licensing via the Nanny-State mentality.

7 mulp February 29, 2016 at 3:47 pm

“There are better methods for ensuring quality for consumers.”

Care to list the “better methods”, …

… which must not include civil torts given all the screams about the high costs of health care caused by civil torts for malpractice even when regulations establish pretty clear standards of care that eliminate most possible claims before filed. For example, almost no claims are allowed for addiction by prescription drug over prescribing, even though the economic losses are very high. I don’t think eliminating FDA regulations and associated prescribing regulations and replacing them with torts against doctors and drug companies to cover the costs of treating drug addiction, loss of income, and survivor benefits from overdoses, would be seen as a “better method”.

8 cowboydroid February 29, 2016 at 9:09 pm

The government is not the only entity capable of developing guidelines or testing and auditing procedures. In fact, the government suffers from a severe lack of incentives to do these things right. Most of its incentives lie with satisfying political interests. And so it usually gets them wrong.

9 kevin March 1, 2016 at 11:23 am

@cowboydroid, you mean like the ratings agencies during the financial crisis, or Arthur Anderson at Enron? How’d that work out? I think political incentives are better then monetary incentives when it comes to testing/auditing

10 Nathan W February 29, 2016 at 1:29 pm

As sympathetic as I am to those who seek such prescriptions, narcotics prescriptions are an obvious no no for telemedicine. In person, there’s at least a chance that the doc will spot the obvious addict and send him/her in the right direction.

11 The Engineer February 29, 2016 at 7:48 am

Indiana tried to get rid of licensed professional engineering recently, but failed.

There are reciprocity agreements between most states for the professional engineering license. And, of course, being licensed is mostly optional for engineers unless you’re a civil engineer working for government.

So perhaps the engineering license could be a test case of this theory of licensure hindering internal mobility.

12 AndrewL February 29, 2016 at 8:58 am

No, that is not true, any engineer who has to submit their designs to the government needs to be licensed whether it be a civil, mechanical, electrical, structural. When building buildings, or infrastructure, there are no oopsie-second chances, thus the government has a strong interest in making sure the engineer designing the supports, sizing the beams, etc has a minimum level of competency.

also each state has unique building requirements, FL has hurricane provisions, CA has earthquake provisions, etc, so each state’s licensing boards require engineers to be familiar with those requirements before being licensed .

For the most part, Professional engineering licenses are portable across states, but the engineer does have to apply to each state they want to practice in, and often have to take an additional exam to satisfy that state’s extra requirement. Of course, this only applies to engineering that affects public safety, and if their designs have to be filed with the local government.

13 Ray Lopez February 29, 2016 at 9:23 am

Surely for building a bridge there’s more security from insurance and performance bonds than a state license test for an engineer that’s taken sometime after the engineer graduates and then the knowledge is quickly forgotten?

14 mulp February 29, 2016 at 4:52 pm

Who do you think defines the building codes and demands certification of construction by certified engineers? Insurers demand certainty, and that is what certification to standards provides.

Try getting professional liability insurance without having certification with legal authority.

Try insuring a structure without it being certified legally as being in conformance with regulations defined by the insurance industry.

15 cowboydroid February 29, 2016 at 9:12 pm

What does licensing have to do with any of that?

16 Nathan W February 29, 2016 at 11:29 pm

Professional licensing organizations often practically write the code – they are best positioned to know what is needed, but are not naive as to their self interest.

17 Justin Kelly February 29, 2016 at 10:47 am

This canned rational is used for all occupational licensing arguments. The first problem is that it is not least restrictive, burdens all engineers for the sake of engineers performing a certain role, but the larger problem is rebutted by yourself: “…has to submit their designs to the government” If designs are being submitted to the government, then the government is already providing oversight that designs comply with law, designs that do not meet the state specification will be rejected and state licensing is moot.

18 AndrewL February 29, 2016 at 12:37 pm

No, the Government does not have the resources to be able to “Check” every design and who would they get to do that?

Designs are filed with the government, the government licenses engineers by establishing requirements to be licensed, typically the requirements consist of a knowledge exam, plus endorsement by other licensed engineers. Once an engineer is licensed, then the State deems that whatever that engineer designs or signs their name to as “approved”. If anything were to happen, such as the building collapsing due to a design fault, then the State has a record of the engineer who signed it and liability claims can be made.

@Ray Lopez,
Engineers work is already insured and bonded, Practicing engineers buy professional liability insurance already, an Insurance company wont even sell you a coverage policy unless you have an PE license. It works hand-in-hand like how credit scores are used to price your auto-insurance of interest rates. How can the insurance company know how competent you are without some form of testing?

19 Ray Lopez March 1, 2016 at 8:46 am

@AndrewL- then your problem is solved, by the free market, is it not? You don’t need government licensing if the private insurance market is already demanding a PE license, correct? Another way of putting it: if an engineering firm started working in a state that was unregulated but they had no professional liability insurance, and no references or examples of their prior work, nobody would do business with them. Free market guarantees that, you don’t need government laws.

20 AndrewL March 1, 2016 at 11:41 am

@Ray Lopez

For Engineering, the State is not saying that you *cannot* perform the engineering work professionally. The State is saying that in order to file the designs with the government, it needs to be stamped, signed, sealed by a PE. The signing and sealing is done to establish clear liability for design fault.

People take for granted that they can just walk outside on the street and not have to think about a building might fall on them. It is a public good and government interest to give the population the confidence the walk around and not worry about buildings falling down due to design faults (not to say it never happens). In pursuit of this goal, it’s in the government’s interest that someone competent sign those drawings so engineering firms can’t just hire stooges to take the fall on poor designs.

If for example, a poorly designed building fell due to a design fault and people were killed, the public would demand the government to hold someone accountable and that someone better have know what they were singing off on which is what licensing is supposed to accomplish.

21 AndrewL March 1, 2016 at 11:45 am

Also, the filing with the government is necessary so that the design drawings cannot be “lost”. In that way the government is performing one of it’s core duties: record keeping.

22 JD February 29, 2016 at 12:41 pm

I had to take a short course in Arctic Engineering to be eligible for an Alaskan PE license. It was incredibly interesting with modules on topics like ice road construction, heat pipe sizing for foundations and road beds in permafrost, and snow fences for fresh water collection and sanitation in remote villages. The rationale for licensure requirements (to ensure minimal competency) was immediately apparent during the “lessons learned” segments.

Bottom line: Really bad things can happen when folks don’t do (or don’t know that they have to do) the math.

23 cowboydroid February 29, 2016 at 9:11 pm

Actually, the opposite is true. Engineers that work for the government do not need to be licensed. Only engineers audacious enough to sell their services to the general public must be licensed.

24 Alan February 29, 2016 at 8:04 am

School teachers face the same proble. Compounded by vesting and seniority rules. Once a teacher for the state, always a teacher for the state (there are exceptions). And performance counts for approximately 0 in determining pay. Urgh1!@#$

25 Slocum February 29, 2016 at 8:10 am

Seems like this is going to be a tough fight. The licensed workers with the greatest interest in reciprocity are those who might like to move to a different state with better prospects. But the licensing change has to be made in the target state and is likely to be resisted by workers who are already there and who are benefiting from the existing barriers to entry. The potential beneficiaries are still out of state and have no voice or vote.

26 Bill February 29, 2016 at 8:11 am

Many of the licensed occupations are ones in which you develop local clients, which are a capital asset, and which you are unwilling to lose if you move. If you are new to a licensed profession, that may not matter. So the degree of measured mobility may be a function of having an established client base if the occupation is basically local.

That said, occupations which need licensing for competency testing should license to a national standard or permit cross state licensing reciprocity so that people can move.

27 Nathan W February 29, 2016 at 1:36 pm

Definitely.

28 Rich Berger February 29, 2016 at 8:19 am

The presence of a license means nothing to me. I choose providers, ranging from painters to physicians, based on word-of-mouth, reviews and my own experience.

29 Max Davis February 29, 2016 at 9:27 am

I’m an industrial auctioneer specializing in the food and beverage manufacturing and processing industry. Our business operates all over north america. I currently am licensed in ~20 states, and someone in our office is licensed in the balance of states that require an auctioneers license. We are a 12 person company. One of those employees primary (but not only) responsibility is licensing. We spend, I would estimate, 75k-100k per year just on licensing and paying the person to keep all of the licenses current. I’ve never learned anything remotely useful in any of the hundreds of hours of CE courses I’ve taken as part of licensing requirements. Aside form the monumental barrier to entry that these licensing requirements have imposed, they don’t even provide a useful database of skills or common risks. In my profession, licensing requirements are strictly in place to keep competition out.

30 mulp February 29, 2016 at 5:01 pm

So, in your view, the $100k to eliminate competitors who might force your prices down to costs must be well spent??

31 cowboydroid February 29, 2016 at 9:17 pm

Not if his business is actually secure from inexperienced competition. I’d wager his buyers value his experience and expertise over an upstart, so they’re unlikely to leave if licensing was removed. But if another buyer wants his services and can’t afford them, they should be allowed a less costly alternative.

32 Max Davis March 1, 2016 at 2:21 pm

we’re highly specialized and so trade almost exclusively on institutional capital. There aren’t many competitors and none are typically local.

33 JB February 29, 2016 at 10:19 am

Obviously, there are some professions in which a neutrally administered exam ensuring minimum standards of knowledge and training would be beneficial. Engineering, medicine, accounting, etc. Fields where there are defined standards of quality based on complex regulatory regimes, the laws of physics, etc and an incompetent service provider can kill or bankrupt you.

However, the majority of licensed professions do not fall into this category. You can tell because of the wide variation in licensing requirements between the states, and in many cases by the nature of the job.

34 Josh February 29, 2016 at 10:29 am

I’m sorry, you think we live in a world where people ought to move *more* often? How many of you neighbors do you even know Dr. T? GDP uber allies, I guess.

35 Nathan W February 29, 2016 at 1:44 pm

You mischaracterize it. A world where they have more freedom to move if they want to. Occupational licensing, or lack of accepting licensing across state barriries, reduces that freedom.

36 mulp February 29, 2016 at 5:06 pm

The cost of selling property in one place and buying replacements in new places plus all to transport and temp living costs are a small barrier?

My guess is 99% of lack of labor mobility is due to factors other than licensing, etc.

37 Josh February 29, 2016 at 7:27 pm

Dear god, not the freedom to flatten the labor supply curve. Anything but that!

38 Josh February 29, 2016 at 10:32 am

The cogs could be even more interchangeable.
Somebody not in finance can support a family by their own labor. Won’t somebody stop them!

39 Jared February 29, 2016 at 11:12 am

Yes, you should be able to support your family by artificially reducing the competition for your job. So should I. So should everyone! Why didn’t I think of this before?! It will make everyone rich!

40 Josh February 29, 2016 at 12:38 pm

It s no t exactly a new idea, and it hasn’t exactly been unsuccessful in the past, but so long as supposed “liberals” and “conservatives” continue to worship billionaires, I suppose it’s off the table.

41 Nathan W February 29, 2016 at 1:56 pm

“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

42 Josh February 29, 2016 at 7:21 pm

Heaven forefend.

43 Urso February 29, 2016 at 10:35 am

I’m not defending the licensing specifically but I disagree that we should enact policies to encourage people constantly moving solely for economic reasons. Families matter, communities matter, cultures matter.

44 Slocum February 29, 2016 at 11:07 am

Nobody’s talking about policies encouraging people to move — only about removing artificial regulatory barriers against moving.

45 Urso February 29, 2016 at 12:23 pm

Here, yes. But I think it safe to say that the author of this post would support such policies more generally. Think of the implications of the phrase “workers are misallocated across the states”

46 Art Deco February 29, 2016 at 10:37 am

only 12 percent of the workforce is licensed, versus 33 percent in Iowa. In Iowa –

You’d have to define ‘licensed’ to include “certified per common practice in a given market segment” for this to be at all true. The share of people in occupations which require state permission to follow them (e.g structural engineering or nursing) is nowhere near this.

47 dave schutz February 29, 2016 at 12:09 pm

When I lived in Mass., twenty-odd years ago, there was a law that you could only do tattoos if you were a licensed physician. This led to a lot of teasing among med students on the theme ‘well, you can’t get the Mass General residency you want, you can always do tattoos’. And, of course, a lot of tattoo parlors on the Rhode Island and New Hampshire borders.

48 Doug February 29, 2016 at 12:56 pm

Unfortunately political demand for occupational licensing probably acts as a complement to open borders. The more you have of the latter, the more people are going to demand the former. Skilled laborers make high investments in their occupational skills. There’s little disparity within the United States, so California opening up competition to Massachusetts isn’t going to have much impact on wages. But the ability to import workers from India, Russia or Nigeria, leads to much higher risk of total devaluation of one’s human capital. The natural political reaction is state-level occupational licensing.

49 Clay February 29, 2016 at 1:59 pm

Shouldn’t the headline read more along the lines of:

“Government Policy does precisely what it’s designed to do”

To me that’s the bigger news.

50 mulp February 29, 2016 at 5:11 pm

Imagine a government regulation that required employers to check with the Federal government to see if you are licensed to work! Why no conservative would ever support requiring an I-9 regulator licence to work check!

51 Nathan W March 1, 2016 at 7:06 am

In Canada, basically any legal work requires a Social Insurance Number, which you can only get if you are a citizen or otherwise legally entitled to work.

Lower end jobs almost always required that you bring in the actual real card itself or proof by showing official tax documentation from a previous year, failing which, you cannot get hired. (Exceptions to this practice abound in construction, home renos, etc., of course.)

While I actually sympathize more with the illegal immigrants who are desperate for opportunities to work than current citizens of the USA, I just don’t understand why the notion of busting employers for hiring illegals is point of debate. Employers, of course, should face high legal sanction for breaking the law, and illegals should never face anything more than deportation.

Comments on this entry are closed.

Previous post:

Next post: