Wednesday, March 15, 2006

The Rise of the Licensed Workforce



Occupational licenses supposedly protect consumers from shoddy services by ensuring the service providers meet some standard of competence. No doubt licensed doctors make for safer appendectomies. But are your neighbors really safer if your state licenses astrologers? Are you more likely to lose a finger if your manicurist operates without a nail technician's license? Is your car safer with a licensed parking lot attendant?

Occupational licensing appears to be getting out of hand. According to Morris M. Kleiner, a University of Minnesota economist, roughly 5 percent of Americans worked in state licensed industries in the 1950's. The estimate for 2000? 20 percent. Alan Krueger's most recent New York Times column asks who, exactly, benefits from the increase in occupational licensing--consumers or the licensees?

1. According to Kleiner, why did state licensing increase during the past 50 years?

2. What does evidence from Kleiner's research suggest about the quality of dental and teaching services in states with strict licensing requirements compared to the quality of the same services in less stringent states?

3. What happens to the price and availability of a service, such as dentistry, when states adopt highly restrictive licensing standards? In other words, what effect do licensing requirements in a labor market have on the final product market?

4. How is a manicurist licensing regime similar to a manicurists union? How is it different?

5. What measures does Alan Krueger suggest to ensure that occupational licenses provide useful signals to consumers? What does Morris Kleiner suggest as an informative alternative to occupational licensing?

Topics: Barriers to entry, Links between resource and product markets

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