Timmons on Occupational Licensing – Econlib

Occupational licensing at present straight impacts multiple in 5 staff in america—up from one in 20 staff within the Fifties. That is practically twice the fraction of staff belonging to a union and greater than 15 occasions the fraction of staff receiving the federal minimal wage. Though licensing is widespread in america, it doesn’t obtain the identical stage of consideration as both of those different labor market establishments. Occupational licensing is expensive for each shoppers and aspiring staff, however ends in measurable advantages for present market practitioners. Occupational licensing persists though its prices very possible outweigh its advantages.

That is the primary paragraph of Edward J. Timmons, “Occupational Licensing,” in David R. Henderson, ed., The Concise Encyclopedia of Economics. It’s a badly wanted replace to the unique article on occupational licensing within the Encyclopedia, “Occupational Licensing” by David S. Younger. Younger’s article stands up surprisingly nicely, provided that it’s 31 years previous. Nonetheless, heaps has occurred, each in coverage and in analysis on the problem. Timmons is on the forefront of this analysis.

One other excerpt:

Economists have estimated the results of occupational licensing on shoppers, aspiring staff, and present practitioners. By limiting client alternative and limiting the variety of suppliers of licensed companies, licensing, financial idea would predict, ought to enhance costs. Analysis confirms that licensing raises the costs of licensed companies by anyplace from 3 to 13%.

Proof is extra combined on the results of licensing on the standard of companies obtained by shoppers. A couple of research licensing of physicians and midwives on the flip of the twentieth century discover proof of some advantages for shoppers within the type of decrease mortality charges. Research estimating the results of licensing within the twenty first century typically discover little proof of advantages for shoppers. A latest e book revealed by the Upjohn Institute analyzing case research of licensing within the US and Europe reaches the conclusion that licensing is just not enhancing the standard of companies delivered to shoppers.

Additionally it is vital to notice that estimating the typical results of licensing on high quality could not totally seize losses in entry to service from reductions within the variety of professionals. This has come to be referred to as the “Cadillac impact.” Milton Friedman launched the thought in his 1962 traditional, Capitalism and Freedom. The concept is that licensing limits shoppers to both buying companies from suppliers assembly requirements set by licensing boards (Cadillacs), or not buying companies in any respect. This may occasionally encourage shoppers to hunt companies within the underground economic system or incentivize shoppers to do the companies themselves. Early work by Carrol and Gaston helps the concept that shoppers start to carry out extra “do-it-yourself” work when licensing limits client alternative by limiting entry.

Discover within the above that Milton Friedman was one of many skeptics on licensing lengthy earlier than skepticism turned standard. I bear in mind being blown manner, after I was 17, by his dialogue of how we may have good drugs with out licensing docs. As Milton acknowledged on the time, he took the toughest situation to refute and, at the least in my thoughts, refuted it.

Due to Alicia Plemmons, who is without doubt one of the main researchers within the space, for humbly recommending her colleague Edward Timmons as writer of the piece and thanks additionally to Tyler Cowen for taking a fast look.