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Session 2: Occupational Licensing

July 8-9, 2019 | Landau Economics Bldg, 579 Serra Mall, Rm 134, Stanford

The goal of this session will be to bring together empiricists and theorists studying occupational licensing. We invite frontier research studying the economics of occupational licensing from any angle. Specific topics likely to be covered include: their effects on the prices and quality of outputs, the reputation of firms, the entry of competitors, the mobility of workers, the opportunities of minorities and the emergence of nascent occupations as well as historical studies of licensing laws, and potential policy alternatives to existing laws. An additional goal of the workshop will be to discuss new data sources and methodologies for studying occupational licensing regulations.

Organizers: David Harrington (Kenyon College), Brad Larsen (Stanford) and Mindy Marks (Northeastern University)

In this Session

Jul 8 | 8:30 am to 9:00 am

Check-in | Breakfast

Jul 8 | 9:00 am to 9:45 am

Occupational Regulation and Immigrant Earnings: Evidence from the EU

Presented by: Maria Koumenta (Queen Mary University)
Co-Author(s): Li Dai ((Queen Mary University)

Immigrants face wage penalties vis-à-vis comparable natives commonly attributed to
human capital depreciation, statistical discrimination and occupational mismatching.
Using a representative sample of the EU labor force, we present the first study on the
relationship between occupational regulation and immigrants’ earnings. We find that
licensing corrects for the wage penalty associated with immigration, while
certification cancels almost half of the observed effect. To address the issue of
identification, we employ different model specifications where we vary the length of
stay, reason for immigrating and consider a policy shock.

Jul 8 | 9:45 am to 10:30 am

Job Market Signaling through Occupational Licensing

Presented by: Peter Blair (Harvard University)
Co-Author(s): Bobby Chung (Clemson)

We show that an occupational license serves as a job market signal, similar to education in the Spence model. In the presence of occupational licensing, we find evidence that firms rely less on observable characteristics such as race and gender in determining employee wages. As a result, licensed minorities and women experience smaller wage gaps than their unlicensed peers. Black men benefit from licenses that signal non-felony status, whereas white women benefit from licenses with a human capital requirement. Certification, a less distortionary alternative to licensing, generates an equivalent wage premium for white men, but lower wage premiums than licensing for women and black men.

Jul 8 | 10:30 am to 11:00 am

Break

Jul 8 | 11:00 am to 11:45 am

Occupational Licensing and Accountant Quality: Evidence from the 150-Hour Rule

Presented by: John Barrios (University of Chicago Booth School of Business)

I examine the effects of occupational licensing on the quality of Certified Public Accountants (CPAs). I exploit the staggered adoption of the 150-hour rule, which increased the educational requirements for a CPA license. My analysis shows that the rule reduces the number of entrants into the profession and increases their wage premium. The same premium is enjoyed by grandfathered accountants, suggesting it is not a return to higher quality. Labor market proxies for quality find no difference between
150-hour rule CPAs and the rest. These findings are consistent with the theoretical argument that the rule reduced the supply of new CPAs and increased rents to the profession with little impact on quality

Jul 8 | 11:45 am to 12:30 pm

Barriers to Opportunity: The Effects of Occupational Licensing on Occupational and Career Mobility

Presented by: Christos Makridis (MIT Sloan)
Co-Author(s): Patrick McLaughlin (George Mason University, Mercatus), Kofi Ampaabeng (George Mason University, Mercatus), Ted Figinsky (U.S. Department of Treasury) and Steve Strosko (George Mason University, Mercatus)
Jul 8 | 12:30 pm to 1:45 pm

Lunch

Jul 8 | 1:45 pm to 2:30 pm

Consumer Protection in an Online World: An Analysis of Occupational Licensing

Presented by: Brad Larsen (Stanford University)
Co-Author(s): Chiara Farronato (Harvard University), Audrey Fradkin (Boston University) and Erik Bryjolfsson (MIT)

We study the effects of occupational licensing on consumer choices and market outcomes in a large online platform for home improvement services. Exploiting exogenous variation in the time licenses are displayed on the platform, we find that platform-verified licensing status is unimportant for consumer decisions relative to review ratings and prices. We confirm this result in an independent consumer survey. Licensing restrictions differ widely by state, and persist despite the growing potential of online reputation to reduce information asymmetries. More stringent regulations are associated with less competition, higher prices, and no improvement in consumer satisfaction for transactions on the platform.

Jul 8 | 2:30 pm to 3:15 pm

Occupational Licensing of Uber Drivers

Presented by: Morris Kleiner (University of Minnesota, Twin-Cities)
Co-Author(s): Jason Hicks (University of Minnesota, Twin-Cities), Jonathan Hall (Uber, Inc.) and Rob Solomon (Uber, Inc.)

Two of the most rapidly growing trends in the labor market in the United States are the online, on-demand economy and occupational licensing. Occupational licensing by state and local governments is a potential barrier to entry for workers who want to drive for a transportation network company, such as Uber. These occupational regulations are typically justified by regulators as ensuring a minimum level of safety and quality. We examine the influence of these regulations on quality and safety outcomes for consumers using star (quality) ratings that riders give drivers following trips and telematics data from individual trips (fraction of hard brakes and hard accelerations). More specifically, we compare safety and quality outcomes on trips performed by drivers with and without an occupational license in overlapping markets, exploiting the quasi-random assignment of trip requests to drivers. We find that occupational licensing frequently does not improve safety and quality outcomes of rides. Even in those specifications where there is a positive effect of occupational licensing the magnitude of the effect is relatively small.

Jul 8 | 3:15 pm to 3:45 pm

Break

Jul 8 | 3:45 pm to 4:30 pm

Occupational Licensing, Labor Mobility, and the Unfairness of Entry Standards

Presented by: Mario Pagliero (University of Turin and Collegio Carlo Alberto)

Occupational licensing at the local market level often coexists with labor mobility across local markets. We empirically study a labor market in which a district specific entry (licensing) examination is coupled with labor mobility across districts. Our analysis exploits a change in the grading procedure of the exam, from grading in the local district to grading in a randomly assigned different district. We document that licensing regulation leads to extreme heterogeneity across markets in admission outcomes (up to 50 percent differences in licensing exam pass rates), unfair (discriminatory) admission procedures (up to 49 percent unfair exam results), and inefficient mobility of workers. We then present a model of occupational licensing and labor mobility and test its additional predictions. Our findings provide the first evidence of regulatory competition based on strategic interaction among licensing boards.

Jul 8 | 4:30 pm to 5:15 pm

A Welfare Analysis of Occupational Licensing in U.S. States

Presented by: Evan Soltas (Massachussetts Institute of Technology)
Co-Author(s): Morris Kleiner (University of Minnesota, Twin-Cities)

We assess the welfare consequences of occupational licensing for workers and consumers. We estimate a model of labor market equilibrium in which licensing restricts labor supply but also affects labor demand via worker quality and selection. On the margin of occupations licensed differently between U.S. states, we find licensing raises wages and hours but reduces employment. We estimate an average welfare loss of 15 percent of occupational surplus. Consumers and workers each bear about half of the incidence. Higher willingness to pay offsets only 60 percent of higher prices for consumers, and higher wages compensate workers for only 70 percent
of the cost of mandated investment in occupation-specific human capital.

Jul 8 | 6:00 pm

BBQ Dinner

Jul 9 | 8:30 am to 9:00 am

Breakfast

Jul 9 | 9:00 am to 9:45 am

Nurse Practitioner Scope-of-Practice Regulations, Migration, and Labor Market Outcomes

Presented by: Victoria Udalova (U.S. Census Bureau)
Co-Author(s): Jeffrey Traczynski (University of Hawaii Economic Research Organization)
Jul 9 | 9:45 am to 10:30 am

The Impact of Scope-of-Practice Restrictions on Access to Medical Care

Presented by: Jiapei Guo (Northeastern University)
Co-Author(s): Angela Kilby (Northeastern University) and Mindy Marks (Northeastern University)

State governments use scope-of-practice laws to regulate the practice authority and autonomy of Nurse Practitioners (NPs), as well as other health care providers. Twenty-four states and DC have liberalized these laws, allowing Nurse Practitioners to independently prescribe controlled medications without a physician’s involvement, so that patients can directly obtain medical services from NPs with the goal of lowered costs and increased access to care. Intersecting with this preexisting variation in states’ scope-of-practice laws is the 2016 implementation of the federal Comprehensive Addiction and Recovery Act (CARA), which extended the privileges of prescribing buprenorphine, one of two first-line medications for the treatment of opioid use disorder, to qualifying NPs. We study this 2016 implementation of CARA against the backdrop of varying scope-of-practice laws as a natural experiment to investigate how removing restrictions on NPs’ prescriptive authority affects access to Medication Assisted Treatment. Using detailed data on the location of buprenorphine clinics we find that residents of states with more liberal scope-of-practice laws have significantly greater access to substance abuse treatment. Additionally, we show that the relative impact of relaxing NPs’ prescriptive authority is stronger in more rural areas, which faced a more acute shortage of buprenorphine providers prior to CARA. Finally, we consider the interaction of these policies with the availability of insurance to low-income individuals for access to substance use disorder treatment that has been provided in a subset of states under the Medicaid expansion. In addition to shedding light on the impact of occupational licensing restrictions, this study provides empirical evidence relevant to health policymakers in addressing the national opioid epidemic, as widespread barriers in access to Medication Assisted Treatment are a well-recognized problem.

Jul 9 | 10:30 am to 11:00 am

Break

Jul 9 | 11:00 am to 11:45 am

The Effects of Dental Hygienist Scope of Practice and Autonomy on Dental Care Utilization

Presented by: Edward Timmons (Saint Francis University)
Co-Author(s): Jie Chen (Lehigh University) and Chad Meyerhoefer (Lehigh University)

Because of the limited supply of health care providers relative to the demand for health care services, increases in provider autonomy are believed to improve access to health care. However, research on the
impact of scope of practice laws for health and dental care providers is limited. We investigate the effects of dental hygienist scope of practice regulations and autonomy levels on dental care access, utilization,
and expenditure. We measure the strength of these laws by extending the Dental Hygiene Professional Practice Index to the years 2001 to 2014. Data on dental care utilization for our analysis come from the 2001-2014 Medical Expenditure Panel Survey. We use a difference-in-difference approach that exploits variation within states over time in scope of practice laws for identification. We find evidence that increasing the autonomy level of dental hygienists modestly improves dental care utilization but increases in utilization are more pronounced in areas with a shortage of dental care providers

Jul 9 | 11:45 am to 12:30 pm

Occupational Licensing and Labor Market Fluidity

Presented by: Ming Xu (Queen's University)
Co-Author(s): Morris Kleiner (University of Minnesota, Twin-Cities)

We show that occupational licensing has significant negative effects on labor market fluidity. Using a balanced panel of workers constructed from public CPS and SIPP data, we investigate the causal effect of licensing on labor market outcomes. We apply a Propensity Score and Coarsened Exact Matching strategy and find that workers who have a government issued occupational license experience significantly lower churn rates than non-licensed workers. Specifically, licensed workers are 5% less likely to switch occupation, and 1% less likely to enter non-employment in the following month. Moreover, occupational licensing represents a barrier to entry for both non-employed workers and employed workers. Employed workers are 2% less likely to enter a licensed occupation next month than a non-licensed occupation, while non-employed workers are 0.1% less likely to enter a licensed occupation. This barrier effect is more prominent for employed workers relative to those entering from non-employment because the opportunity cost of acquiring a license is much higher for employed individuals. Lastly, we find that licensed workers have higher average wage growth rates than nonlicensed workers whether they stay in the same occupation in the next year or switch occupations (6.5% higher for both cases). We find significant heterogeneity in this licensing effect across different occupation groups. These results hold across various data samples, time spans and different indicators of being licensed. Applying a sensitivity test for selection on unobservables from Altonji, Elder and Taber (2005) we show that omitting unobservables biases all of the licensing effects towards zero, which implies that our estimated licensing effects are a lower bound.

Jul 9 | 12:30 pm

Lunch