South-Western College Publishing - Economics  
Do You Have a License to Make Those Ice Cream Cones?
Subject increase in state licensing requirements for various occupations
Topic Labor markets, Governemnt and the Economy
Key Words

license, unions, supply, wages. Recent research indicates that a growing number of occupations require state licensing as a precondition for employment. In fact, twice as many people are now working in licensed positions than those working in unionized jobs, a big twist from 20 years ago. Why?

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Reference ID: A142704726
News Story

How does this kind of shift happen? A group of workers organize into an occupational association (American Medical Association (AMA), for example) to lobby the state government to require licensure for their particular occupation. Few state governments have any incentive not to grant such requests from occupational organizations, since licenses provide significant sources of revenue for state and local governments. Licenses typically require annual payments, minimum educational or training levels, and passage of some sort of field examinations. State requirements vary, and not every state recognizes other states' licensure criteria.

Why has this shift away from labor unions happened? Service sector jobs have increased rapidly, and licensing occurs most often for services. Second, more and more occupations began to lobby the government for licensing restrictions to ensure that their practitioners all meet at least a minimal competence level and to create barriers for new entrants into their professions.

The downside is that consumer safety may no longer be the main reason for licensing-rather, the main objective may be to restrict the supply for particular workers. Studies indicate that dental workers' wages in heavily licensed states are l1% higher than for the same kind of workers in non-licensed states. Consumers do not pay much attention to licensing restrictions, but large buyers of services - such as hospitals seeking to hire licensed health care providers--usually object to continued licensure restrictions because those restrictions limit their available labor pools.

Questions
1.

What effects do licensure and certification--in which individuals must purchase licenses to show that they have a particular set of qualifications-have on particular labor markets?

2. How does licensure affect the elasticity of labor supply in particular service markets? Why?
3. How does licensure affect the distribution of worker vs. provider surplus in service markets in which licenses are required? Indicate this with a graph of supply and demand.
Source Alan Kreuger. "Do you need a license to earn a living? You might be surprised at the answer." The New York Times2 March 2006. http://www.nytimes.com
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