Are intuitions about occupational licensing and minimum wages consistent?

The other day I asked whether our intuitions about minimum wages and also occupational licensing might be consistent.  In particular, if we think occupational licensing is very bad for employment and prices and welfare, is that consistent with monopsony/low elasticity of demand for labor models?

That is a tough problem, here is one approach:

If you think minimum wage hikes are fine, typically you believe something like:

“A 20 percent hike in the required wage will not much damage employment, if at all.”

What then would you say to this?:

“A 20 percent training surcharge on all worker hires will not much damage employment, if at all.”

It seems you should believe the second proposition as well.

Now, consider occupational licensing.  Typically it is not absolute (“only 300 goldsmiths in Florence!”), but rather it imposes a surcharge on entrants.  They have to pass a test, or undergo training, or receive a degree of some kind.  They must incur training costs to get the license, and you can think of those training costs as a tax on the employment relationship.  But if those costs are incurred, a worker passes through the permeable membrane of the licensing restriction into the active labor force pool of that sector.

Of course we all know that a tax can be borne by either side of the market, depending on elasticities.

Now, if you believe minimum wage hikes don’t much harm employment, you believe the demand for labor is relatively inelastic.  And if you believe the demand for labor is inelastic, the burden of the training costs for licensing fall on the employer, not the worker.  Taxes fall on the inelastic side of the market.

Now, you’ve already assented to: “A 20 percent training surcharge on all worker hires will not much damage employment, if at all.”

So the occupational licensing should not much damage employment either.  The employer simply picks up the tab, albeit grudgingly.

(The effect on consumer prices will depend on market structure, for instance you can have a local monopsonist shipping into in a largely competitive broader market — tricky stuff!).

The occupational licensing will not help workers as the minimum wage hike would, because there is (probably) greater rent exhaustion in the licensing case.  The workers get higher wages, but they are paid the higher wages precisely to compensate them for and pull them through those arduous training programs.

So the licensing and the minimum wage hike are not equivalent, for that reason alone.  But still, the licensing will not really harm the interests of the workers, again the burden being born by the employer, or possibly the consumers in the retail market to some extent.

So if you are finding occupational licensing results that damage overall worker welfare, you must not accept the premises of the low price elasticity demand for labor model!

Another way to put the point is that the occupational licensing papers are testing some of the common presumptions of minimum wage models, and flunking them.

First addendum: It is not an adequate reply to this post to reiterate, with multiple citations, that minimum wage hikes do not lower employment.  Even assuming that is true, other simple models will generate that result, without clashing with the occupational licensing studies.  For instance, the employer might respond to the minimum wage hike by lowering the quality of some features of the job.  In essence you are then suggesting the demand for labor may be elastic, but the real wage hasn’t changed much in the first place, and then it is easy enough in the occupational licensing setting for the burden of licensing to fall on the class of workers as a whole.

Second addendum: There is a longer history of minimum wage assumptions not really being consistent with other economic views.

Have you ever heard someone argue for wage subsidies and minimum wage hikes?  No go!  The demand for labor is either elastic or it is not.

Have you ever heard someone argue for minimum wage hikes and inelastic labor demand, yet claim that immigrants do not lower wages?  Well, the latter claim about immigration implies elastic labor demand.

Have you ever heard someone argue that “sticky wages” reduce employment in hard times but government-imposed sticky minimum wages do not?  Uh-oh.

It would seem we can now add to that list.  Maybe we will see a new view come along:

“Labor demand is elastic when licensing restrictions are imposed, but labor demand is inelastic when minimum wages are imposed.”

Third addendum: Of course there are numerous other ways this analysis could run.  What is striking to me is that people don’t seem to undertake it at all.

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Instead of getting rid of minimum wage, why don't we instate maximum pension laws? Perhaps no public pensions higher than social security and can't collect before social security--even for police, fire, armed forces, congress-person, etc.?

Or just reverse Kennedy's executive order permitting public sector unions. If public sector workers had to bargain individually for their total compensation, some would want pensions and others would want higher current wages and no pensions. At any rate the transaction would be arm's length and transparent.

There is nothing intrinsically wrong with wanting to work for deferred instead of current compensation.

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It probably depends on the specific job, but in general it seems more plausible that demand for most types of labor would be relatively elastic as most jobs are not essential and just exist to make the employer more money on the margin.

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I have no idea about how monopsony power (is that the correct jargon?) would impact this analysis. That is, my understanding of why minimum wage hikes empirically tend not to show measurable declines in employment is that employers have a good deal of bargaining power over workers, and hence pay workers less than their marginal product. So when minimum wages are raised, employers don’t reduce their number of employees because they would lose too much in sales, and the marginal cost they save would be outweighed by the marginal revenue.

As for occupational licensing, I thought that was always more of an efficiency/distributional argument. The training is excessive and costly, and reduces overall output and makes services more expensive for everyone. It also redistributes income upward towards people who already have money to pay for the training.

Of course the simplest reply is that employer demand for minimum wage labor is inelastic, whereas demand for higher paid labor is more elastic. Perhaps because there is much greater scope for self employment among higher paid labor? That is, it is possible to provide license restricted services without incurring the overhead of a brick and mortar/IT intensive operation, whereas minimum wage employment is concentrated among large employers who build business models on unskilled and undifferentiated labor?

"that employers have a good deal of bargaining power over workers, and hence pay workers less than their marginal product"

How would this work? Seriously, I often hear this argument and I'd like to understand it - and I still do not.

There speaketh someone who has never had to hire workers.

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I have heard it explained that workers (for 2 or 3 decades in the US) are in no position to bargain for better wages, because unemployed and underemployed people outnumber vacant positions. So even though an employer sees reduced profit if an employee were to quit, on aggregate the options of a large number of employees was either to accept whatever was being offered them or to be unemployed. My guess is that employers, in the aggregate, were betting that higher levels of employee turnover and disengagement on the job was less costly than raising wages to lower turnover and get a more engaged workforce. So since they were willing to eat those costs, employees didn’t have any leverage. I mean, you could quit, but the employer wouldn’t care and certainly would never consider offering you a raise to get you to stay even if it was more profitable to them in that individual case, because the whole business model was to keep labor costs as a whole as low as possible. But since that was most everyone’s business model, where could you find a job that paid better (without additional education or training)? However, it turns out this business model had reached the point of negative marginal returns. It turned out that the increased costs of turnover did outweigh the costs of paying minimum wage workers a bit more, which is why you have seen a bunch of big box retailers start to raise their wages.

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See if this intuition works for you: do you understand why a monopolist would be able to charge a higher-than-marginal-cost price? If so, then just invert the picture in your head: if a monopolist can charge more than marginal cost, a monopsonist can pay less than marginal product, by the same logic.

Assuming the employer is monopsonist. Is it? It doesn't seem so.

Correct; the argument rests on the employer being a monopsonist.

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> Of course the simplest reply is that employer demand for minimum wage labor is inelastic, whereas demand for higher paid labor is more elastic.

I think It is exactly the opposite. Low wage labor demand is elastic, but high-skill labor demand is inelastic. I need a database programmer, whether he asks for 90k or 120k.

> That is, my understanding of why minimum wage hikes empirically tend not to show measurable declines in employment is that employers have a good deal of bargaining power over workers

I think they simply offer fewer fringe benefits, for example McDonald's reducing the employee discount on food. This lets the firms pass on the cost of the minimum wage onto their workers without reducing employment.

The whole monosopsony idea, to me, feels like what someone would come up with by reasoning backward from their conclusion.

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Is the number of people required to have some kind of license higher than the number of people working in minimum wage jobs? It appears so - indeed, it appears that medical doctors alone outnumber people earning exactly the minimum wage. (Quick web search.)

The analysis must be adjusted for different segments of the labor market.

That is, the question is not "does a 20% training fee reduce employment" - but rather, "in what segments of the economy does a 20% training free reduce employment, and by how much"

Likewise, one might conjecture that minimum wage laws reduce employment or redistribute the geography of employment, but only among those labor market entrants with very low bargaining power.

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I don't think you have to accept the later if you agree with the former.

Although you can convert anything to monetary terms, the behavior to an increase in minimum wage is completely different to an increase in training surcharge.

The most obvious (to me) is that the wage increase is clear and easy to measure, while the training is only an estimate at best. And we know that both firms and individuals have a preference for certainty.

So I would say the reduction in employment from a 20% training fee will be significantly higher than an increase in minimum wage. In all segments, everywhere. Perhaps lower in segments in which the skills acquired by the training plus the experience of doing the job have an actual or perceived higher return on the long term.

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"It is not an adequate reply to this post to..." Haha, this is a nice try, but one of the points of debate is that you don't really get to set limits on what the other guy says...

I'm fairly happy to bite the bullet on this; my intuition is that occupational licensing doesn't lower worker welfare. I've seen it argued many times on this very blog that it is current members of the occupation who lobby for licensing, so obviously they believe that it improves their own welfare; it may damage the welfare of other potential entrants to the occupation, but I'm not clear that the harm to that smaller number outweighs the benefits to industry incumbents.

That aside, there are a lot of devils in the detail: the welfare impact curves may indeed slope the same way, but they're not straight-line curves, and factors like time and magnitude could easily make a difference to the final outcome of any analysis.

Finally, I get that minimum wages run against your libertarian views; I get that they seem like a bad violation of basic economic principles. But the constant harping on this particular violation - and there's been a *lot* of discussion of the issue on this blog - just ends up making you sound like Ebenezer Scrooge. This is a purely political/aesthetic/mood affiliation point, so of course you can ignore it. But it's like Republicans who harp on about personal morality while ploughing through multiple wives and mistresses. It doesn't look good.

Minimum wages are important because they have risen so quickly in some locations as to destroy whole industries, for example medium-priced restaurants. Otherwise we would not be discussing them in preference to other issues.

That’s a fair response, but given that US unemployment is at historically low levels, I’m struggling to worry about it too much. You seem to be suggesting that you wish all those employed people were paid less...

I think part of the reason why this becomes such a talked about issue is that price controls are so fundamental to basic economic understanding and it’s an area where public support for the policy flies in that understanding’s face (put aside for a moment the empirical debate over the magnitude of the effect).

And second it’s because recent escalations in this policy differ from the past. It used to be that every 5-10 years or so, when needing to score some political points, the min wage would be raised to a level only modestly above the market clearing rate and it wouldn’t be adjusted for inflation. So the negative effects are minimal and whatever downsides that do exist decrease over time as nominal wage rates ride.

But in recent years we’re talking about $15 min wages or even higher. And often automatically raising them with inflation as well. This is a level not only well above the market clearing rate in many locations, but also high enough to eat into “tradable” sectors with that have the ability to move production locations. It’s quite possible that future min wage hikes are going to do some significant labor market damage. At least we’ll get some good empirical studies out of them.

Fair enough, that is a good answer to my question, thanks.

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I've seen it argued many times on this very blog that it is current members of the occupation who lobby for licensing, so obviously they believe that it improves their own welfare; it may damage the welfare of other potential entrants to the occupation, but I'm not clear that the harm to that smaller number outweighs the benefits to industry incumbents.

You sound like somebody that would support a candidate who promised to restore the medieval guild system. Why should workers in only certain occupations enjoy the competition-limiting, compensation-boosting benefits of licensing? Why not "Legal barriers to entry for all occupations NOW!" Of course, a catchier slogan would be needed, but given your perspective, I don't see how you could object to the idea.

But let me point out two problems with your idea that current incumbents favor licensing. To the extent that's true, it may be because they have already been forced to incur the expense of licensure and need the higher compensation to recoup those costs. If they were offered a deal where the occupational licensing scheme was dropped but they were compensated for the time and money they'd spent on getting licensed, their opinions might be different. Also, you missed one of the big sources of support for occupational licensing -- not practitioners in the field but companies that profit from the state-mandated classes and testing services:

“The reform had been stalled for years because of opposition from private cosmetology schools, which sell training for the licenses.”

https://www.atlasnetwork.org/news/article/eliminating-pointless-occupational-license-in-ohio-clears-major-political-h

Thanks, Slocum.
I’m not really representing my own views there, just trying to follow through the logic of the post. And I’m afraid that while your points might be valid, you miss the big picture:
“ given your perspective, I don't see how you could object to the idea”
I object to guilds because they harm *consumer* welfare, not because they harm worker welfare. Cowen made his arguments strictly about worker welfare, and if you do that, you have to follow through consistently.
Incidentally, that points to the big difference between guilds/occupational licensing and minimum wages. Occupational licensing may be good for workers in that industry but bad for consumers. But minimum wages affect a much larger chunk of the population, so the difference between those two groups is much smaller.

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The thing this entire analysis is missing is that occupational licensing and minimum wages have differently weighted impacts on different populations. Occupational licensing disproportionately impacts entrepreneurs who will have to overcome the additional barriers to entry to start a sole proprietor business, or less likely, to pay a wage premium to employees with the appropriate qualifications. In my years of experience, minimum wages don’t apply to sole proprietor businesses, so that part of the population is only impacted by licensing. Big business has to wear the costs in pretty much the same way as Tyler outlines above, but it only has to compete with sole proprietors on an even playing field in the case of licensing. Actually, big business probably has an advantage in this case because of its lower cost of capital and a better ability to wear the incremental cost of licensing over time.

On the other hand, if minimum wages go up, people can still start their own business and compete at below minimum wage (as long as you can jump through all the hoops to not qualify as an employee), so consumers don’t have to wear the same amount of cost push. Small businesses like these are more flexible and more likely to expand in smaller population centres or niches that are otherwise unappealing to big business, perhaps because of different opportunity costs, perhaps because small business owners are just more likely to make bad decisions, but either way consumers in these areas benefit.

So, if choosing between the two: if you prefer big business, you should prefer licensing, if you prefer consumer choice you should prefer minimum wages. If you prefer neither: welcome to the real world, rationality need not apply.

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"if we think occupational licensing is very bad for employment and prices and welfare, is that consistent with monopsony/low elasticity of demand for labor models?"

In terms of people's political ideologies, wouldn't we expect the people who dislike occupational licensing also to dislike minimum wage laws and to be believers in high elasticity of demand?

And vice-versa, defenders of occupational licensing would also tend to be more comfortable with minimum wage laws and to believe that monopsony and inelastic labor demand curves are abundant?

How many people mix these views and have the allegedly inconsistent beliefs that Tyler decries?

Moreover, I think people's beliefs about markets, and indeed the actual markets, are more nuanced than Tyler seems to believe. I'm still a believer that minimum wage laws in general -- and especially if large enough -- will have a negative effect on employment. But we've seen plenty of research where a minimum wage increase did not have a measurable effect on employment. Probably because the increase was too small, or there were other complicating factors that made the ceteris become not parabus.

Finally, Tyler ignores the nominal albeit naive view of occupational licensing, namely its role in weeding out the incompetent or low quality providers. Yes public choice economics tells us there are other more nefarious forces at work, but there is surely some of the naive story at work as well.

I was wondering the same thing. Who are these people that are pro-market with regard to minimum wage, but not licensing, or vice-versa? I also agree with your second point. The main argument for licensing is some sort of appeal to safety, and while I don't think that is a sufficient rationale, it's more nuanced and defensible than minimum wage, which comes of as plain old economic ignorance.

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In this particular domain, not many.

But Tyler gives other examples of conflicting views which are much more common:

> minimum wage hikes and inelastic labor demand, yet claim that immigrants do not lower wages? Well, the latter claim about immigration implies elastic labor demand.

That's every progressive/leftist/democrat ever.

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Note to self: avoid typing lengthy comments on phone. Apologies to all who read that and dealt with my stream of consciousness, hopefully it made some kind of point.

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Does Tyler have any books that outline his position on big business?

+1

Against minimum wages and occupational licensing, a love note to big business.

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Minimum wage hikes are spent by the poorest on their needs and wants. A 20% training surcharge could end up in numerous less worthy buckets. Where the money is spent is important.

Minimum wage hikes cause the weakest companies to go out of business, while licensing supports all established organizations (that can fill out the paperwork requirements). The wage hike accelerates a turnover of businesses while licensing performs the opposite. A training surcharge applied across the board would have a similar affect as minimum wage hikes on the marginal business closing but the money would need to be spent as wisely as giving the poorest direct infusions of cash to affect the economy the same as a wage hike.

Licensing suppresses wages for many workers to great advantage for established players. Regardless of the skill level of workers many must work a certain amount of time under an established player to gain or maintain credentials, lowering wages compared to working on their own. Restrictions on how many workers can be trained at any one time further results in keeping wages low during training for several desirable vocations as new employees must compete for the limited number of positions available. The trainers also wield tremendous power over the trainee because finding a replacement trainer can be very difficult.

As an example, plumbers and electricians are often restricted in how many people they may train at once for years, leveraging wages down because of the lack of options for new entrants into the field.

> "Minimum wage hikes are spent by the poorest on their needs and wants."

As opposed to other wage increases that people spend on things they don't want or need?

> "Minimum wage hikes cause the weakest companies to go out of business, while licensing supports all established organizations (that can fill out the paperwork requirements)."

I love when minimum wage enthusiasts admit they want to get rid of businesses. That means wages go to zero, but they get to feel good about themselves.

Also the idea that licensing is just paperwork....impressively dumb.

And if licensing helps businesses....why does it need to be mandatory? Why wouldn't they do it on their own?

As opposed to the rest of the paragraph, that ties directly into the question and topic at hand. But you probably knew that.

I said no such thing, you may want to look at having your responses correspond to what's actually being discussed.

Many businesses have leaned into licensing and increasing requirements. That you imply you don't know of any reinforces you have an axe to grind instead of actually contributing to the discussion.

> Many businesses have leaned into licensing and increasing requirements. That you imply you don't know of any reinforces you have an axe to grind instead of actually contributing to the discussion.

That you implied I didn't know of licensing requirements shows you rather do ad hominem instead of debate issues.

A business is, of course, free to put whatever requirements it wants on its employees. That does not prove that government-mandated licensing requirements are good/necessary/helpful. Pretending they do reinforces that you lack critical thinking skills.

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A first order effect of a minimum wage hike *might* be a reduction in employment (as a result of labour elasticity) but there could then be second order effects resulting from employees being able to spend more. If an increased minimum wage resulted in increased spending, that could in turn result in more jobs - which might explain the studies showing that an increase in the minimum wage does not result in reduced employment.

This would be different to the training surcharge scenario, where the license fees etc are often (but not always) payable to the government.

That second order effect I think does exist, but it only partially offsets the labor demand decline, not balancing it out 1 for 1. 100% of the additional pay to min wage employees is not being spent on local area demand for low skill labor. Either directly or down the chain.

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It's conventional wisdom that the supply of labor is less sensitive to taxes than the demand for labor. This is because workers who need a job are not as responsive to changes in wages, but businesses are able to “shop around” for the best workers or shift production to different locations. Thus the employee actually bears most if not all of the employer's share of employment taxes (via an equivalent cut in wages). Payroll taxes are a significant source of government revenue, but the burden of the payroll tax is not apparent to those who actually bear the tax. Then why the charade that the employer is "paying" half the payroll tax?

President Reagan, known for tax cuts, signed into law the largest tax increase on working Americans, ever. I am referring to the payroll tax increase adopted during the Reagan administration (signed into law by Reagan after approval by the Democratic majority in the House and the Republican majority in the Senate). Thus, while Reagan cut income taxes paid by those with higher incomes, he increased taxes paid by ordinary working Americans. By phasing in the tax increase over a period of years, working Americans failed to make the connection: for most working Americans, "taxes" are the amounts withheld from wages. Indeed, the sleight of hand had the dual benefit of shifting the overall tax burden down the income stream and turning ordinary working Americans into tax protesters.

This comment about tax incidence should raise Cowen's ire in much the same way as the incidence of minimum wages and licensing costs does. Maybe it does, maybe it doesn't. His point, and my point, is that markets determine wages, not government. The next time the self-appointed saviors of social security propose an increase in the payroll tax I anticipate many blog posts pointing out that the incidence of the increase will be borne entirely by employees, none by employers.

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Intuitions should be different because there are enough material differences between the two that advocating for both with equal enthusiasm at the same time is the rarer case. For example, different individual populations would be affected by each policy, one differentiates labor while the other deals with undifferentiated labor, and certain industries would be more impacted by one versus the other. There are enough real world factors here that I actually think the argument presented was a bit reductive and will come across a bit too academic to some. In other words, it will be more logically consistent but also feel intuitively off. For the record I agree with your positions in the abstract but I don't think a little inconsistency here is the death of reason or anything like that.

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I generally do not like either occupational licensing or minimum wages, but ...
1. My main gripe about the minimum wage debate is lamenting the unemployment caused by the minimum wage WITHOUT arguing for a wage subsidy as an alternative.
2. How onerous are the training/certification requirements for low wage occupations barbers, hair stylists, etc. relative to other start-up costs of changing professions? The seeming ease with which immigrants have moved into these occupations makes me thing that the restrictions are not very binding.
3. The real problem come from restrictions of supply of doctors/nurses etc.

#1 These two are not related. You can be both against a min wage and a wage subsidy.

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This is a very thought-provoking post.

I had a little quibble with one point: "Have you ever heard someone argue that “sticky wages” reduce employment in hard times but government-imposed sticky minimum wages do not?"

What if the elasticity of labor demand is time-varying? When firms have excess capacity, then firms may be constrained by how much they can sell and reducing wages may not lead them to increase employment much. By contrast, if firms are expanding output rapidly, then a lower wage rate might induce them to increase employment more significantly.

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But isn’t there a major difference in who collects the rents/deadweight loss? For occupational licensing, much of the surcharge/rent is collected either by schools (eg cosmetology school) or else by the government. This seems like a big difference in the model no?

Yes, and the post says exactly that.

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Economics literacy. Nine of the ten best schools for economics and business are located in the U.S. according to the latest from U.S. News (Harvard is ranked first, the London School is the exception (at number eight)). https://www.usnews.com/education/best-global-universities/economics-business

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Both are immoral and result in unintended consequences.

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I think there are missing factors in most analyses of minimum wages, namely the context of the welfare state and the effective price the government pays people not to work.

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Occupational licensing only applies to *skilled* labor and minimum wage only applies to *un-skilled labor* It's an apples to oranges comparison, I don't really understand what Tyler is getting at with this post.

Of course it requires investment to learn/train in a skill, whether all skilled labor needs licensing is another issue, but I don't see how you can conflate the investment required to learn a skill with minimum wage increases.

That was somewhat my reaction as well. Job entrants into skilled positions or semi-skilled positions need to learn their skills somewhere. Is it more efficient to learn a skill in an organised and collective setting (a school) with a "license" at the end, or as an apprentice in on-the-job training? (The answer may well be both).

The main post discusses employment rather than self-employment. My guess is that the majority of employers actually prefer licensing because they find that system more efficient than on-the-job training. Thus, compared with the counter-factual, I don't see licensing adding much, if anything, to labor costs. This is quite unlike the minimum wage in which no value is demanded or added with respect to the additional (nominal) cost.

This is indeed an apples and oranges comparison. I find the usual arguments against occupational licensing rather superficial and over-wrought.

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I'm confused. Licensing only affects new entrants, thereby shifting all of the incentives for whomever incurs the cost of the licensing costs and decreasing labour mobility between industries. None of these effects are present with minimum wage hikes. Given that, how can you draw any kind of equivalence between the effects of these two policies?

He can't draw that equivalence. Cowen seems to have confused minimum wage earners with ALL earners. A minimum wage increase isn't equivalent to a surcharge on all hires, it is a wage increase for about 2.3% of workers.

https://www.bls.gov/opub/reports/minimum-wage/2017/home.htm

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The purpose of occupational licenses is twofold.

First, they are to a large extent organic. They stem from the market demand for some kind of indicator of competence. Microsoft had a bunch of certifications; in my industry there are factory trained technicians and have been since the inception of the industry. Many of the industry competence standards have structures of administration, that then can be cited as the authority when it comes to legal certification. These initiatives at least in the beginning are customer driven.

They limit the supply driving up the cost, which then makes projects and positions too expensive, so they don't get done, don't get hired. The licensed providers don't see that effect, nor do very many people, because it is invisible and unmeasurable. How do you measure projects that didn't proceed because of the high costs of the expertise needed?

Minimum wages are different in motivation. The goal is that workers receive a minimum amount of money for their labor, and are often accompanied by other requirements such as minimum hours for attendance, maximum hours, etc. They are nibbling at the edges of the perversities of low skilled labor. There are very few people receiving minimum wage, any effects of the impositions will be on new workers or short term transient jobs. Most people in low skilled jobs who show up on time and are reliable get more than the minimum. But whole industries are constructed around having very few people like that and many short term employees.

The effects will be different, and much of it unmeasurable. Jobs simply won't exist, they aren't worth doing at that price. As Tyler mentions the hours get cut, and other ways where the same job costs the same amount to be done. The real effect will be seen in youth unemployment rates. Low end housing rents will increase to match the ability to pay.

Governments will set the minimum wage and welfare rates to not create a situation where you are better off on welfare than making minimum wage.

The hard reality that the costs of anyone's labor has to be offset by productive output. And that productive output can in a globalized economy be provided by someone in Vietnam for far cheaper than any North American minimum wages.

Certificates and occupational licenses are two different things:

Certification deals with imperfect information, it means that you passed a test and your type is confirmed high. It increases welfare by providing more information to the market participants.

While licensing is a rent-seeking procedure to restrict supply and increase prices. Obviously, it generates welfare loss.

The difference is that licensing BLOCKS entry while certificates only indicate quality.

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This is the best MR post ever

Yes, this is why I love MR. Now I have something to think about on the metro ride home tonight.

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It is absolutely obvious that minimum wage laws have a major effect on self service. Therefore studies showing no substantial effect on employment are all lies.

Over time, businesses restructure their activities to use less of the more expensive resource, even though they don't lay anyone off the morning after the minimum wage law takes effect.

We still have a very large "not in employment, education, or training" population that is strangely not counted as unemployed. It is absolutely obvious that minimum wage laws have a large impact on the size of that population. You reach the conclusion that minimum wage laws have no impact by looking at the short term impact, and by not counting the permanently unemployed.

If you measured the effect of price controls on bread or rent the way you measured the effect of minimum wage laws, you would also reach the conclusion that they had no impact.

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I am not a great fan of either, but I view minimum wage laws as far less pernicious as they tend to have a weak constituency who has a natural incentive for bloat.

After all, the costs of licensure ultimately end up in somebody's pocket. I know medicine and I know that the cost of medical education has been increasing steadily. You would be forgiven in assuming that this is being driven by medical schools acquiring better technology, more clinical faculty, or improving the teaching process. Instead medical schools continue to generate even more paper pushers than hospitals.

Of course the medical schools are themselves certified. The LCME ensures that medical schools actually teach medicine. Yet somehow they are now going deep into the weeds, expanding their footprint faster than the medical schools, and somehow the petty empires continue to grow.

And on it goes. The American Board of Internal Medicine was caught a few years back attempting to increase licensure maintenance costs in order to fix a gaping hole in their books created by paying out over $100 million to senior executives to do little more than oversee tests. Shockingly, once their finances were posted online, they magically abandoned the increase in compliance costs.

And that is my biggest worry with occupational licensing: it creates a much larger class of people who are incentivized to increase licensing burden. Minimum wage? Ehh sure a few inspectors and lawyers make bank. Licenses? Whole schools, their accreditation programs, and untold bureaucrats spawn and will benefit from further licensure.

Minimum wage largely spends resources consumed on workers who will quickly exit minimum wage. Licensure spends its resources consumed on new classes of people who want more resources burned and will always be in this position.

Minimum wage is a broken window. Licensure is window breaking drone set free.

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You do a lousy job framing questions and imputing assumptions, generalizing where generalizations are not posited or required. Wages do not equal training surcharges and inelasticity of labor demand at the minimum wage boundary does not require a belief that all labor is inelastic, to take your first two examples. You're oversimplifying and overgeneralizing to try to trip up people.

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What about credit constraints? What if someone cannot pay the cost (including the opportunity cost of not working while training) upfront of getting a license?

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We invest in restaurant businesses (God help us) so are familiar with min wage challenges. Recently spent time reviewing a retail service business that requires an aesthetician's license. Ways it's different and generally worse for everybody (but especially employer) than higher min wage:
1) Narrows your pool of applicants. Fewer candidates want to invest the time in training, when they don't know if they are going to like the job
2) The 8-12 week training period coincides with the time period when turnover is at its highest. Costs employers more because they lose a fair amount of candidates during training / licensing period. Costs candidates too, if they are paying themselves.
3) You'd be surprised how cautious employers when it comes to agreeing to pay for the candidates' training / licensing. Often takes the form of reimbursement of licensing expense after employee has stayed on the job x months. Seems like a bad move that further narrows your candidate pool, but employers HATE paying for licensing then losing employee. Not unreasonable, but presents a dilemma.
4) Candidates are often paid little or nothing during training. That's a big deal if you need to pay bills.
5) The ONLY example I've seen where California employment rules are more reasonable than New York.

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...you can have a local monopsonist shipping into in a largely competitive broader market...

So let me get this straight...there are many other firms selling basically the same things (eg, food), but only one of them gets to hire from a given sector of the population. How does that work?

Speaking of training, Wharton Professor Peter Cappelli coined what I call Cappelli's Law: Employers always end up paying for training one way or another.

* They can provide (or otherwise directly pay for) training, preferably also pay employees while they're being trained.

* They can pay higher wages to the much smaller group of employees willing and able to finance (pay both direct and opportunity costs for) their own training.

* They can do without the trained employees they need.

"So let me get this straight...there are many other firms selling basically the same things (eg, food), but only one of them gets to hire from a given sector of the population. How does that work?"

Company towns (one company owns the local mine that is the only large employer in town; BTW Banerjee and Duflo just published an op-ed in the NYT in which they say that only 4% of Americans move to a different county each year now, down considerably from their mobility rate a few decades ago).

An employer who's the only one wiling to hire undocumented aliens, or immigrants who don't speak English, or unskilled labor (or in earlier years, women or black workers).

Local dominance and economies of scale (the company's built the local large factory and there aren't enough workers to fill a second large factory, and a small factory would be inefficient).

How effective those monopsonies are, and how common in real life, remains an ongoing area of controversy. Just as the controversy over how powerful and common monopolies are has been going on for centuries.

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...you can have a local monopsonist shipping into in a largely competitive broader market...

So let me get this straight...there are many other firms selling basically the same things (eg, food), but only one of them gets to hire from a given sector of the population. How does that work?

Speaking of training, Wharton Professor Peter Cappelli coined what I call Cappelli's Law: Employers always end up paying for training one way or another.

* They can provide (or otherwise directly pay for) training, preferably also pay employees while they're being trained.

* They can pay higher wages to the much smaller group of employees willing and able to finance (pay both direct and opportunity costs for) their own training.

* They can do without the trained employees they need.

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