Stages of Occupational Regulation: Evidence from Case Studies

1 - Introduction and Overview

1 1 Introduction and Overview A dominant perspective on the development of policies for the regulation of occupational labor markets is that these workers should be regulated to ensure quality providers and high levels of service. In only some narrow areas should competitive labor markets alone be dominant. Others argue that occupational labor markets should be free of government regulation because they have little need for licensing through government rules, except in those cases where the health and safety of society are seriously threatened. Since World War II, the market for occupational oversight by government has grown to such an extent that by 2008 almost 40 percent of the U.S. labor market had, or was required to eventually obtain, either a license or certification from some form of local, state, or federal government (Kleiner and Krueger 2013).1 Since governmental occupational regulation varies greatly depending on the occupation that is licensed, the purpose of this book is to examine a variety of occupations that are at different stages of regulation and determine to what extent regulation has influenced the individuals in the occupation, consumers, or other closely related occupational practitioners. Since governments at the local, state, and national levels are confronted with the interests of the members of the occupations—and in rare cases with the interests of consumers of the services seeking more regulation—the goal of this book is to provide new analysis and evidence on how these labor markets work in the face of new and continuing government regulations. The book adds further background and new analysis to the issue in the law-versus-economics debate, which asks whether litigation or regulation is better for society (Kessler 2011). If regulation is efficient, then ubiquitous regulation, which is found in most advanced nations, adds greater impetus for economic development (Shleifer 2011). On the other hand, the general theme of law-and-economics research suggests that contracts and the courts are a substitute for regulation (Coase 1960). They argue that if potential externalities can be contracted Kleiner2013.indb 1 Kleiner2013.indb 1 9/18/2013 10:10:17 AM 9/18/2013 10:10:17 AM 2 Kleiner around, no regulation is necessary. However, the growth of regulation through occupational licensing suggests that some manner of efficient regulation may be gaining as the dominant form of public policy. An additional issue that emerges with more regulation is that as occupational licensing becomes more prevalent, there is more room for litigation . This is because licensing develops more rules, which require legal interpretation. That results in further complaints adjudicated through the courts. The implications for economic growth are therefore unclear. The common threads throughout the book include showing the growth of regulation and its variations over time. Each subsequent chapter shows an occupation that has a higher level of regulation. In this way, the successive chapters demonstrate the influence of increased regulation on the wages of the occupations and, where data were available , its effects on employment. A unique aspect of the book is that it portrays outcomes both for consumers in the case of regulation of mortgage brokers and for young children’s educational attainment in the case of licensing of preschool teachers and their assistants. Another unique aspect of the analysis is the examination of occupations such as those of dentists and hygienists, who battle with regulators over who is permitted to do what type of work in dental offices. A further innovation is the examination of how regulations may influence the number of workplace injuries and deaths suffered by plumbers and electricians in the construction industry, which is the most hazardous industry, based on total numbers of workplace accidents in the United States. Overall, there are common aspects of the volume, yet each chapter delves into the unique historical or institutional aspects of a particular occupation and how it is regulated by government using data and analysis. The evolution of occupational regulation has a long and distinguished intellectual history. Adam Smith, in his 1776 work The Wealth of Nations, notes that trades conspired to reduce the availability of “skilled craftsmen” in order to raise wages. Smith goes on to say that “to hinder him from employing this strength and dexterity in what manner he thinks proper without injury to his neighbor, is a plain violation of this most sacred property. It is a manifest encroachment upon the just liberty both of the workman, and of those who might be imposed to employ him” (Smith 1937). In the...