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Title: Stringency in Occupational Licensing Requirements: Explanations and Effects

Citation Type: Dissertation/Thesis

Publication Year: 2023

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Abstract: Occupational licensing is the practice of government establishing minimum qualifications and requiring registration for practitioners of a given occupation (Kleiner and Vorotnikov 2017). It is often presented as a form of human-capital quality control — a barrier to entry to exclude those who cannot meet a desired minimum skill level (Timmons and Mills 2018). A requirement's stringency is a measure of how difficult or resource-intensive it is to obtain licensure, based on factors including fees, minimum level of education, required apprenticeships, and waiting periods. Occupational licensing is prevalent across the United States, impacting nearly 30 percent of all employees as of 2008 (Kleiner and Krueger 2013). Requirements are often directly set by, or set with the input of, a dedicated state board for each occupation. These boards contain a mixture of practitioners, other professionals, and laymen, and may exist independently within state governments or fall under the purview of a specific department. Occupational licensing is also the subject of extensive literature and debate, dating back to Adam Smith’s (1776) The Wealth of Nations, in which he is critical of its merits and its effects on the poor (Kleiner 2000). Much of the debate surrounds its stated purpose of raising the quality of services and protecting consumers. Many authors argue that it is instead industry interests that create and perpetuate these requirements to collect monopolistic rents in the form of higher wages by restricting supply (Friedman and Friedman 2002; Kleiner and Krueger 2010; Kleiner 2016; Timmons and Mills 2018). The literature on occupational licensing almost universally finds that licensure increases wages for practitioners (Kleiner 2000; Kleiner and Krueger 2010; Timmons and Thornton 2010; Timmons and Thornton 2013; Kleiner and Vorotnikov 2017; Kleiner 2017). The breadth of evidence for supply restriction is narrower, but similarly almost universal (Adams et al. 2002; Timmons and Thornton 2010; Kleiner et al. 2016; Kleiner and Vorotnikov 2017; Kleiner 2017). There are, however, some studies which do not support these theories. Zapletal (2019) finds no significant effects of stringency on prices or, along with Thornton and Weintraub (1979), supply of practitioners. This paper has a two-fold focus on both causes and the effects of stringency of occupational licensing requirements. First, I address the question of whether organizational and administrative characteristics of professional boards affect the stringency of requirements. In particular, does the membership composition of boards and the focus of the department under which they operate, if any, matter? Friedman and Friedman (2002) argues that professional boards create a perverse incentive by placing members of a profession in charge of the regulation of entry. This creates “direct economic interest … concerning admission requirements and the definition of standards…” (Gellhorn 1956, 106). Therefore, theory would predict that the greater the percentage of professionals on the board, the loftier the requirements the board produces. Another problem of incentives may also exist based on the department that oversees a given professional board, or lack thereof. A board with a departmental focus on public health may produce distinct and differentially-impactful standards than another with a focus on commerce, even within the same occupation. It may be easier for a health-focused board, compared to other boards, to impose more stringent requirements under the cover of its noble mission. Second, I focus on the effects of stringency on practitioners within a licensed occupation. The most simple supply and demand model of the labor economy indicates that any additional barrier to entry excludes some producers from the market. Such would be the case for a more stringent licensure requirement, be it a higher licensing fee or more examinations. Keeping some producers out of the market would, in turn, increase the equilibrium price. Does such a model hold in real-world conditions? In order to answer these questions, I focus on the field of cosmetology. As with most occupations in the United States, it is regulated exclusively by states, leading to great variation in the requirements across the country. The characteristics which make cosmetology particularly ripe for study are universal licensing requirements and its variation in administration across states. This presents the opportunity to examine the effects of administration, for example, by a public health-focused agency compared to a commerce-focused agency, on a state-by-state basis. Composition of state cosmetology boards, which exist in all but one state, also varies significantly. Mississippi’s board, for example, is entirely composed of cosmetologists; California’s board has a majority of laypeople, and only statutorily requires a single practicing cosmetologist.1 As far as I am aware, no study to date has examined administrative and organizational characteristics of professional boards as determinants of regulatory hurdles. Economic and political theory, however, indicate that such an effect may exist as a result of perverse incentives. Research in other disciplines, such as Weiss and Piderit (1999) and Desmidt (2016), have found that government agency mission statements affect school and employee performance. Such findings support the hypothesis that differences in professional board administration may lead to differential outcomes. Furthermore, literature examining the effects of stringency on the labor market, particularly with a focus on practitioners themselves, is relatively sparse compared to more general studies of licensing.

Url: https://stable.nhall.co/thesis/stringency_in_occupational_licensing.pdf

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Authors: Hall, Nicholas

Institution: University of Connecticut

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Pages: 1-47

Data Collections: IPUMS USA

Topics: Labor Force and Occupational Structure

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