Occupational licensing and interstate migration.

• Author: Mulholland, Sean E.
• Position: Critical essay

In an overview of his book with Lowell Gallaway, Out of Work: Unemployment and Government in Twentieth-Century America, Richard Vedder (1993: 1) states: "Not only has the government contributed to the instability and volatility of unemployment in several important episodes in American history, but the overall long-term level of unemployment has been raised by government policies"; furthermore, "the victims of these well-intentioned government policies have been largely the poor, the unskilled, and minorities, not the more affluent educated middle classes." A substantial part of Vedder's writing and research--much of it with Lowell Gallaway--has directly or indirectly stressed this fundamental reality of government policies (e.g., Vedder, Gallaway, and Sollars 1988; Vedder and Gallaway 1992a, 1992b).

Much of Out of Work concerns itself with federal government policy. However, state and local governments also pursue policies that erect barriers between individuals and employment opportunities, and those opportunities are often ones that require relatively low levels of skill and experience. At the level of state governments in particular, occupational licensing laws represent a substantial complex of such barriers, and occupational licensing has become increasing prevalent across the U.S. economy. In the 1950s, about 1 out of 20 American workers required a license for their occupation. By 2006, this ratio had climbed to nearly 1 out of 3 (Kleiner and Krueger 2010, 2013). Today more than 800 occupations are licensed in at least one state. (1)

There are some plausible justifications for occupational licensing laws. For example, if it is difficult for consumers to distinguish between higher-quality versus lower-quality labor services in a given occupation, then licensing can provide incentives for individuals to make investments in occupation-specific human capital (Ackerlof 1970, Shapiro 1986). Occupational licensing can then essentially solve a lemons problem. Consider electricians. If consumers cannot distinguish higher-quality from lower-quality electrical work, or if it takes a substantial period of time before consumers are able to make the distinction (e.g., when one's house bums down years later), then competition may crowd higher-quality electricians out of the market, leaving only the lower-quality ones (i.e., the lemons). (2) Occupational licensing may decrease consumer uncertainty regarding the quality of the licensed labor service while also increasing consumers' demand for that service (Arrow 1971). (3)

However, many of the occupations for which state governments require licenses do not seem to fit the bill for being associated with serious lemons problems. The information asymmetries that consumers face in procuring these labor services seem relatively slight. For example, according to the License to Work study published by the Institute for Justice (Carpenter et al. 2012), occupations that require licenses in at least half of the states include auctioneer, makeup artist, athletic trainer, cosmetologist, barber, taxidermist, and massage therapist. For those occupations, one needs a creative imagination to spin a tale where lemons crowd out all of the higher-skilled competitors. Looked at from a different perspective--but again one that calls the lemons problems justification into serious question--Carpenter et al. (2012: 29) note that "EMTs [Emergency Medical Technicians] hold lives in their hands, yet 66 other occupations have greater average licensure burdens than EMTs." Even a casual look across licensed occupations in the United States suggests that licensure burdens do not have a clear, positive relationship to information asymmetries and the need for quality control.

A more persuasive explanation for the pervasiveness of occupational licensing is regulatory capture (Stigler 1971). Existing members of a given occupation represent a special interest. That special interest stands to gain from erecting barriers to entry. Existing members of the occupation stand to gain by insulating themselves from competition. Occupational licensing imposes burdens on potential entrants to a specific occupation, including fees, mandatory training periods, apprenticeships, and examinations. These burdens act as barriers to entry that secure rents for the existing members of the occupation. In the case of regulatory capture, then, the demand for occupational licensing is rooted in the existing members of the occupation being licensed. Consistent with the idea of regulatory capture, the majority of membership on licensing boards is almost always drawn from members of the occupation being licensed (Kleiner 2000: 191).

Licensing of Low- and Moderate-Income Occupations

Licensing is often required for various types of high-skill, high-education, typically high-income professions. For example, over 44 percent of U.S. workers with college education beyond a bachelor's degree are licensed by government (Kleiner and Krueger 2013: S183). These licensed professionals include medical doctors, engineers, and lawyers. In contrast, only about 14 percent of workers with less than a high school degree and 20 percent of those with only a high school degree are licensed. However, in this article we are more interested in the burden imposed by occupational licensing on the latter type of workers. Low-skilled workers with relatively little experience are often just trying to get footholds in the job market--perhaps to obtain their first jobs that will, in addition to providing wages, allow them to accumulate the additional skills and experience that will later on translate into upward income mobility. For these workers, the burdens of occupational licensing can be particularly onerous.

Notwithstanding their lack of formal education and work experience, lower-skilled and inexperienced individuals may still be creative and innovative, alert to new ways of providing for consumers and may profit from doing so. For these individuals, the burdens associated with licensing can effectively dampen or entirely snuff out the entrepreneurial spirit. These individuals cannot simply "hang out a shingle" and offer their labor services in ways that address consumer preferences. For example, as of 2012, there were 36 states that required licensing to be a makeup artist. This is an occupation that requires little formal training or capital to start. Indeed, much of the value that a makeup artist brings to the table is likely rooted in inherent creativity and talent--an eye for the elegant, exotic, or otherwise beautiful. Yet in states where a license is required, potential entrants to that occupation must pay an average of $116 in fees and complete 138 days of education and/or on-the-job experience. In the case of the latter, the experience is often acquired as an apprentice, which is essentially low- or no-wage labor provided to existing members of the occupation. Relative to the opportunities available to a high school dropout, these costs may be quite large.

Occupational Licensing and Migration

In a recent...