Bryan Caplan links to a relatively new working paper by Kleiner and Krueger on occupational licensing. Studies show that it is associated with a 15% wage premium. What Bryan is interested in here is that licensing doesn't seem to inflate the returns to education very much (often getting a license requires a college degree). Bryan is surprised... I'm not sure we should be that surprised. Bryan is a skeptic about how useful degrees really are, but of course if you think they are useful, then this isn't an artificial inflation of the returns to education at all, and it's probably a pro forma requirement for formal training that people working in this line of work would have pursued anyway.
Morris Kleiner - a nationally known expert on licensing and the co-author of this paper - is one of the chapter authors for the engineering book I'm contributing to (his chapter will also be on the licensing of engineers). He's a very nice, down to earth guy. I shared a cab with him from NBER back to the airport, and he had lots of interesting thoughts to share on what academic life was like.
I think Kleiner and Caplan are generally right about these sorts of supply restrictions, but we need to be careful. There are real principal-agent problems and information asymmetry problems in professions that use licensing, which a reasonable licensing standard could actually help with. You can't just point to the 15% wage premium and chalk it up to protectionism. A chunk of that may be genuine productivity gains. Licensing like this emerges naturally from self-policing by different professional groups. Of course it can be overdone, but we shouldn't just instinctively turn up out nose at it. You've got to be careful with that sort of libertarian social engineering instinct, or you'll wreck some good emergent order!
Where I think licensing probably does the most damage is in lower skill occupations that really aren't plagued with principal-agent problems, and don't need the self-policing. Those can be real barriers to employment for low skill workers. Matt Yglesias used to post on this a lot - he was good at bringing attention to this problem.
Another great observer of American social problems highlighted the risks to low income workers posed by licensing as far back as the sixties (when licensing was less common). Does anyone know who he was?
Procrastinating on June 29, 2016
1 hour ago