Occupational Licensing Around the World - Marginal REVOLUTION

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Hartley and Kleiner have a new Fed Minneapolis working paper surveying workers around the world to measure occupational licensing by country. In the United States, occupational licensing has increased substantially over time, so one might expect licensing to rise with income. Their headline result is the opposite: occupational licensing is negatively correlated with GDP per capita. Many developing countries such as India, South Africa, and the Philippines have a lot of occupational licensing while Denmark, Sweden and France have relatively little. Similarly, countries which rate poorly in measures of government quality, such as regulatory quality, political stability, the rule of law, and corruption have more occupational licensing.

I do have some concerns, however. The figure for India of 42% of workers requiring a government license seems too high. Admittedly this is the home of the License Raj but I worry about the survey results. In order to mark a surveyed worker as requiring an occupational license HK require that the worker say that a) they have a license and b) a license is required to work in their profession. But in India there are many workers who do not have a license and a license is required to work in their profession–HK, however, consider these workers confused and drop them from the analysis. That is appropriate for a developed country where there aren’t many illegal unlicensed workers but, as the authors later discuss, informality is very high in India so working illegally is not uncommon.

Including these workers would make the true India figure even higher than HK report but I think with such a high degree of informality we also have to wonder whether survey responders in India really are responding the same way as in Germany. Perhaps they are reporting a license isn’t really required since very few workers have one. In India, for example, some 60% of "licensed" drivers have an fake or invalid license and many have no license at all so maybe workers are just reporting the facts on the ground.

Within the United States, professions are regulated in some states but not others—Louisiana, for instance, requires florists to be licensed. (Do license-holding Louisiana florists produce better, safer arrangements? I don’t think so.) Given this variation even within a single country, we’d expect considerable variation across countries too. Multiple independent surveys—not just HK—confirm that Denmark, Sweden, and even France have less occupational licensing than the United States. Since these countries have high state capacity, we can rule out the hypothesis that licensing exists for safety or quality. The implication is clear: occupational licensing is often about rent-seeking, not quality assurance.

Addendum : See also my review of  Allensworth’s The Licensing Racket which finds that licensing board spend most of their time and effort on regulating entry rather than quality and my paper on the surprise delicensing of occupational licensing in the funeral industry in Colorado.

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