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Occupational licensing on the rise; unions on the decline

February 9, 2011

A couple days ago, a front-page story in the Wall Street Journal laid out a case that the licensing of occupations – that is, the regulation of various jobs by prohibiting people from performing them unless they have a government license earned by passing specific education, training, or testing requirements – has gotten out of control, restricting competition and raising prices for consumers. The article gives all sorts of examples of ridiculous occupations for which one must be licensed by a state government to legally practice, including florists, interior designers, hairdressers, and cat groomers. These kinds of stories are easy to come by, and they’ve set the blogs aflame (Matt Yglesias in particular loves this issue). Moreover, it’s all easy fodder for libertarians, the Cato Institute, or anyone who wants to build a case against regulatory policy writ large.

Here’s one aspect of the issue I find most provocative. Occupational licensing might be viewed as a form of worker protection that, unlike unions, is very much on the rise. According to a 2009 NBER study by Morris Kleiner and Alan Krueger, far more workers are currently in licensed occupations – nearly 30 percent of the labor force – than are members of labor unions – about 12 percent (though the overlap is considerable; 45 percent of licensed workers are also unionized). In an intriguing Reuters piece, Felix Salmon makes a pseudo-progressive case that licensed occupations are the service economy’s version of a unionized workforce:

…state licensing is part of what a post-industrial economy looks like: post-industrial employment is, in the aggregate, more highly skilled and more consumer-facing. And that requires a different regulatory apparatus than an economy that largely takes place on a factory floor. So it should come as no surprise that more and more workers require a license these days… [licensing laws] are, in a sense, a form of worker protection which is acceptable to Republicans — think of them as unions for people who hate unions.

I’m not entirely sure what I think of licensing as a whole – more on that later – but I am sure that it’s a poor replacement for unions. It’s true that working in a licensed occupation comes with a wage benefit – Kleiner and Krueger estimate it to be 18 percent, which is comparable or even slightly higher than the wage benefit of private-sector unions. But that’s where the similarities end, even in pure labor market terms. Licensed occupations and labor unions are qualitatively different in at least these ways:

  • Federal vs. state: Labor law regarding unions exists at the federal level and applies, at least theoretically, to all U.S. workers. Most of the action in occupational licensing is at the state level, and different states have vastly divergent licensing laws. This has obvious implications for labor mobility and…
  • Effect on wage differential: Unions narrow the wage differential between different workers in different places working the same jobs. Indeed, this is a major goal of labor unions and one that has been so challenged by the global economy – equal work for equal pay within a sector, across regions, across demographic categories, etc. means fewer opportunities for wage arbitrage (i.e. a “race to the bottom” in wages). Licensing has no such effect, and arguably might increase variance in wages within a sector.
  • Collective action: The type of collective action that licensing encourages is narrow and occupation-based, compared to the broader collective action that exists under progressive unions. (My historical knowledge is a bit shaky here, but I’ll still share this thought I had: one might compare licensed occupations to the guild-style unions of the AFL earlier in the 20th century, before its merger with the CIO: i.e., regressive forces that sought to protect its members to the exclusion of others in the working class. Indeed, this seems to be a major thrust of much of the criticism of licensing.)
  • Employee voice: Concomitant with the above, unions bring all sorts of benefits aside from simple wage gains. Grievance processes and other formalized conduits for employee voice are not at issue at all with licensed occupations. One might posit that skilled service workers have less need for such benefits; but I’ve yet to see a serious argument that workers should have less voice.
  • Competition between occupations: Also related to the collective action item, licensing occupations results in nasty competition between related occupations. Interior designers have been fighting to be licensed (and succeeded in Florida) in part because the licensed occupations of architects and engineers have encroached on their ability to do the work they see as theirs. Similar turf battles exist between, say, dentists and dental hygienists. The ultimate result is pressure for all occupations in a given field to become licensed lest they become extinct once “competing” professions become licensed first.
  • Type of workers protected: By its very nature, licensing protects skilled occupations. Kleiner and Krueger find that some 45 percent of workers in licensed occupations have at least an undergraduate college degree. Unskilled workers – the very workers for whom unions are most important – are not only left out of this labor-market institution, they are arguably actively hurt by it. Some folks (Dean Baker comes to mind) would likely argue that licensing is basically a kind of protectionism that favors the relatively wealthy and skilled segments of the working force at the expense of the relatively poor and unskilled – especially in an era of globalization in which “free trade” means exposing unskilled workers to global competition while simultaneously sheltering skilled workers.

That’s a lot of differences, but it’s the last one I find more stark. To be sure, not all skilled workers in licensed occupations are high-wage. But if one views unions as vehicles for the working class to better their lives and enter the middle class – rather than as narrow interest groups protecting already inflated wages for a small segment of workers – occupational licensing is clearly a poor substitute.

I’ll have more on this in a following post, once I decide more clearly what I think about licensing and its effect on quality vs. restricted competition. I should leave off with a full disclosure, which is that Morris Kleiner, one of the leading scholars on this issue, is a professor of mine and I’m currently enrolled in a very relevant class of his entitled “Public Policies of Work and Pay.” I believe, but am not sure, that Kleiner would agree with the thrust of this post; perhaps an update on that will be forthcoming as well.

Flying Whale

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2 comments

  1. […] only one sign Jonas and I saw that hinted at the potentially damaging effects of guild-unionism (or occupational licensing), something along the lines of, “I’m not replaceable, I’m a professional.” […]


  2. […] into a post-industrial economy based more on services than manufacturing. However licensing is arguably a poor replacement for unions, especially for unskilled workers who are most vulnerable. The Wisconsin protests […]



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