Econ Neglects Licensing

Labor economics is economists studying work and employment.  The latest Econ Journal Watch has an article suggesting distorted priorities in labor econ texts.  In the U.S. now, less than 3% of workers earn the minimum wage, about 12% are in unions, and about 29% are required to hold a state-issued license to do their work.  But here are the priorities of “five undergraduate labor economics textbooks currently in print. … All but one have been published in four or more editions”:


Here is my relevant theory paper, here are some sample licensed jobs,


and here are more informative quotes from the EJW article:

Kleiner and Krueger (2008) find that licensing is associated with a 15 percent wage premium. … Pfeffer (1974) who finds a negative relationship between the ease of licensing and income of accountants, attorneys, barbers, dentists, and pharmacists, though he finds no such correlation for real estate agents. Similarly, Kleiner and Kudrle (2000) find that tougher licensing requirements for dentists raise practitioners’ incomes. Timmons and Thornton (2008a) conclude that radiologic technologists in states with licensing earn as much as much as 6.9 percent more than those working in states without licensing; Timmons and Thornton (2008b, 141) find that “certain licensing provisions may have increased the earnings of barbers by as much as 26 percent.” …

Examining the real estate market, Johnson and Loucks (1986) conclude that licensing regulations result in better service for consumers. In contrast, Carroll and Gaston (1981, 973) report that “consistently from occupation to occupation [among the seven they studied] there existed a strong negative association between per capita numbers of an occupation and measures of per capita quality of service received” … Kleiner and Todd’s (2007) … [show] tighter state bonding/net worth requirements for mortgage brokers is associated with higher foreclosure rates and a greater percentage of high interest mortgages. … Kleiner and Kudrle (2000) study the dental health of air Force recruits and find recruits from states with more stringent dentist licensing standards do not have better dental health than recruits from states with lower standards. Similarly, Skarbek (2008, 71) analyzes Florida’s relaxation of restrictions on construction contractors in the wake of Hurricanes Frances and Katrina and finds “little evidence of significant detrimental effects from the policy change” … Paul (1984) finds no evidence that states licensing physicians experienced higher quality care as measured by mortality rates. 

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  • The professional world’s equivalent of unions, then?

  • Paul (1984) finds no evidence that states licensing physicians experienced higher quality care as measured by mortality rates.

    Which states do not require physicians to be licensed?

  • U.R. – Paul’s 1984 abstract is here. It examines the *history* of physician licensing.

  • Check out this physician salary survey.

    I don’t know how much of these huge salaries is diverted to pay for insurance and college. But the most likely story to me is that the AMA has been able to use its monopoly to limit the number of doctors to far below what the market demands, driving their price up while at the same time giving us shoddy health care.

    But going to Congress with a plan to loosen physician licensing is a political non-starter.

    Maybe a cap on medical college tuition, and on medical lawsuit rewards, would have more of a chance.

  • Evan

    Hey Robin,

    I frequently read and always enjoy your posts. My appreciation from Overcoming Bias comes from the fact that while people usually say “If you torture the statistics long enough you can get them to say anything” it seems in your Overcoming Bias posts usually avoid precisely that.

    In light of that, I was struck by two things

    1) How long are the Chapters in these books? The numbers 1 and 2 look a lot smaller than double digit numbers but may be much larger

    2) How fundamental are the lessons that lie behind the phenomenon? Economics textbooks are not meant to be proportional to how many laborers are affected, but to the theories of Labor Economics.

    It almost seems like you thought of a point and wanted to make it even though it turned out not to be there. Any chance you could respond? Thanks

    -Economics/Rationality Student

  • George

    As a statistician, every time I find a paper with a dodgy study design, or inappropriate analysis or conclusions, I entertain the thought that there should be a law that only licensed and presumably competent people be allowed to analyze data.

    Do economists feel the same way when they see economics applied incorrectly?

  • Evan, I can assure you that there are deep important economic theories relevant to licensing. I even linked to one in the post.

  • g

    Evan, it sounds as if you think Robin’s point is strengthened if “1 chapter” is assumed to be a small amount, but that’s wrong. The numbers that Robin’s saying are small are the ones in the second, not the fourth, column of his table.

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