Latest / The Capitalism and Freedom in the Twenty-First Century Podcast / On The History of Occupational Licensing in the U.S.

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On The History of Occupational Licensing in the U.S. · The Capitalism and Freedom in the Twenty-First Century Podcast

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  This is the Capitalism and Freedom in the 21st century podcast
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  where we talk about economics, markets, and public policy.
• 0:49
  >> Jon Hartley: I'm Jon Hartley, your host.
• 0:51
  Today I'm joined by Morris Kleiner, who is the AFL-CIO Chair in Labor Policy at
• 0:56
  the Humphrey School of Public Affairs at the University of Minnesota.
• 1:01
  Morris is a labor economist and the world's leading authority on
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  occupational licensing, which he studied for decades as an economist.
• 1:10
  Welcome, Morris.
• 1:11
  >> Morris Kleiner: Well, thank you and delighted to be with you.
• 1:14
  >> Jon Hartley: I want to start by talking about your origin story.
• 1:18
  And you were born in a displaced person's camp in Germany after World War Two.
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  Both your parents were Holocaust survivors.
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  Tell me about your whole story of growing up and your family's story and
• 1:30
  how you came to America.
• 1:32
  You almost came to Canada.
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  Tell us a little bit more about your origin story.
• 1:37
  >> Morris Kleiner: Glad to.
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  Certainly, my origin started at a very low level.
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  My father, who was in Poland and lived in a very small town, he was Jewish.
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  And one of the Holocaust survivor, he tried to, it started, he tried to escape.
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  But when Germany invaded Russia, he came back to Poland and through a number
• 2:00
  of circumstances, one of which was they put his father in jail and said that
• 2:05
  they were going to kill him unless they got someone who was young at the time.
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  And he traded his life for his father, although in the long run,
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  didn't turn out well for his father.
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  But was put into a work camp in a place called Starkowitz and
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  then was shipped to Auschwitz and then finally to Dachau.
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  And he met my mother after the war and her whole family was murdered.
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  And they met in a displaced persons camp.
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  If you've ever seen the Steven Spielberg saga of the liberation of the camps,
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  my father was liberated at Landsberg, and that's where they met.
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  And they came.
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  They were fortunate.
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  There was an opening to come to the United States.
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  They took it.
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  My father worked as a laborer, made mattresses in Peoria,
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  Illinois, and was very happy to be in the United States,
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  especially given the very difficult life.
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  And things started out for him.
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  And I grew up in Peoria, and things turned out well for me.
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  Went to school.
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  First person in my family to go to college and fortunate enough to get funding.
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  And also my wife Sally was a huge help throughout my academic career.
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  Went to the University of Illinois, got a PhD in economics, and
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  then went to the University of Kansas, spent time in DC at
• 3:43
  the Brookings Institution and at the Department of Labor.
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  And following that, got a position at the University of Minnesota in 1987 and
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  have been there ever since and have really enjoyed my time as
• 3:59
  an academic and being at the University of Minnesota.
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  That's fantastic and what an amazing story, and I'm so
• 4:08
  sorry about your parents' family.
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  I mean, it's really just one of the worst tragedies in all of human history.
• 4:17
  >> Jon Hartley: I'm curious, so you also served in the us military, too.
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  Tell us a little bit about that and what got you interested in labor economics
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  to begin with, and occupational licensing, which you're very well known for.
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  And I think you are the single leading authority on occupational licensing.
• 4:40
  I'm curious, how did that all happen?
• 4:43
  >> Morris Kleiner: Well, it happened when I was at the Brookings Institution.
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  I was farmed out to the Department of Labor, and
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  I was the new person at the Department of Labor.
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  And my boss called me in and said, we have this project some
• 4:58
  congressman wants to know about occupational licensing.
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  You're the new kid on the block.
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  I'm giving this to you.
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  And I said, what had I done to him to get this terrible assignment?
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  And I started getting into it, found out how interesting it was, saw that
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  Milton Friedman had thought it was a very important issue and got into it.
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  And I was also, by the way, doing a lot of work with a number of colleagues,
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  including Richard Freeman at Harvard,
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  who really piqued my interest in collective bargaining, labor relations.
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  And I really saw a lot of very close parallels between what happens
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  with labor unions and what they do and what happens with occupational licensing.
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  So it was very much a parallel type of analysis to look both
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  at collective bargaining unions and what they do with respect to,
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  in one case, raising wages as occupational licensing does and
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  what it does for prices and consumers.
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  >> Jon Hartley: Well, I mean, it's so interesting.
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  Milton Friedman wrote his doctoral dissertation on this topic of occupational
• 6:13
  licensing.
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  He wrote about this in the early 20th century.
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  And he famously, I think, later talked about doctors and
• 6:21
  how doctor licensing, physician licensing sort of made doctors almost
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  as if they were sort of unionized in a sense.
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  But I'm curious,
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  what is your understanding of how Milton Friedman's dissertation came about?
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  And I know, like, I think famously, the American Medical association sort of tried
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  to block its publication dissertation.
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  He turned it into a book, which turned into something that was co-authored with,
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  I think Simon Kuznets who was his advisor at Columbia.
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  And then they published that, I think,
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  called Incomes from independent professional practice.
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  But it's amazing because he was writing about it then when.
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  I think occupational licensing as a macro issue was a lot smaller.
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  As unionization has become less and less popular, fewer unions,
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  fewer union members across the US, occupational licensing has quickly risen
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  and become, I think, the largest labor institution in the US.
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  About 25%, I think, or so
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  of all workers in the US have some sort of occupational license.
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  Meanwhile, in this group, from probably single digits or
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  around there in sort of 1950, whereas in 1950, probably a third of the US labor
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  force was unionized and that's dropped, I think, less than 10%.
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  I'm curious, what do you think about this sort of macro trend?
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  And you've been following it very closely, following many professions.
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  One, how did you get interested?
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  Was it really Friedman that got you interested in occupational licensing?
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  And what do you think are the biggest issues in occupational licensing, and
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  what do you think has contributed to its rise over the past, say, 70 years or so?
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  Well, I hate to disappoint you, but what got me interested in
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  occupational licensing was my boss assigning me this topic.
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  >> Morris Kleiner: But I really found the work as a result of that.
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  It was a serendipitous event, but I found Milton Friedman's work.
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  I found it very compelling and very interesting.
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  I was fortunate enough to be asked to write for an Oxford University press book
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  dealing with Milton Friedman's contributions to economics.
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  And I was asked to write the chapter on occupational licensing.
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  But as you correctly point out, licensing grew from about
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  one in 20 workers to now one in four workers have attained.
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  And that's the difference between coverage and attainment.
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  It may be sort of in the weeds.
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  Coverage is engineers, so every engineer is covered by a law.
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  But less than half, probably closer to one in four engineers,
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  have actually gotten an occupational license, similarly with accountants.
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  But the numbers that are used is, yes, about one in four workers have
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  attained an occupational license, but many more are covered by a license.
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  And why has this happened?
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  Why is the current period different than the period right after world War two?
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  Part of it is really structural shifts.
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  After World War two, the dominant employer was in manufacturing,
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  General Motors, Ford, Chrysler.
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  And those workers didn't need an occupational license.
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  The employer chose who they wanted but since that time,
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  there's been a real structural shift to services.
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  And that if you're a steel worker in 1950 and now you're a personal trainer,
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  the personal trainer needs a license where the steel worker didn't.
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  And that's been a large part of the shift from manufacturing to services.
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  And manufacturing unions dominated in services what has taken substituted for
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  unions has been occupational licensing.
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  Now, occupations that require licensing,
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  they typically skew towards the lower end of the income distributions.
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  >> Jon Hartley: Is that sort of a good generalization to make?
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  >> Morris Kleiner: Well, certainly there are occupations both at the lower and
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  higher end.
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  So at the higher end,
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  you think of the traditional ones that were licensed after the civil war.
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  So doctors, dentists in the 1920s, nurses, so those are the high end occupations.
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  More recently, following World War two, it has been the lower income occupations.
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  So there's development of new occupations like dental hygienists,
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  like physicians assistants, like nurse practitioners.
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  All those are evolving occupations.
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  And when the way licensing develops,
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  you get a number of people who are doing the same thing.
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  They get together, they form an organization, they tax their members,
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  they take those taxes and then lobby the legislature or the governor.
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  In the US, licensing is really a state by state role, so
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  that about 80% of all licenses are at the state level.
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  And the organizations lobby the legislators and the governors.
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  And if they're successful, which many have been in the post World War Two period,
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  they establish an occupational license for that occupation.
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  Which says only people who have government positions and
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  can use the police powers of the state can work for pay in that occupation.
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  >> Jon Hartley: So I think there is a sense in the policy sphere that there
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  is an excessive amount of occupational licensing.
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  And you hear about certain professions, for example,
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  that may not even be necessarily the most high skilled jobs out there,
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  nail technicians or braiders, for example.
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  Or hairdressers that don't necessarily need significant amounts of training,
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  but are licensed and have state licenses that also don't necessarily
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  aren't recognized in other states.
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  So if you're a nail tech or a hairdresser in,
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  say, Maryland, you may in your license there.
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  You may not be able to actually go work in, say, Virginia,
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  one state over is that a big macro trend in occupational licensing?
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  I'm curious what your thoughts are on that idea that occupational licensing
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  has grown so far that.
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  It's actually one having negative consequences in the labor market in
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  terms of labor mobility and people actually just trying to find work.
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  I'm curious what your thoughts are on that criticism of occupational licensing
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  growing a bit too far.
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  >> Morris Kleiner: Well, certainly, and the groups that really need to focus or
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  try to get monopoly rights more recently have been these lower level occupations.
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  So in order to become a cosmetologist in most states,
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  you need 1500 hours of classwork and or practicum.
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  That's more hours than it takes to get a law degree in most states.
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  And what has happened as occupations have grown in terms of
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  their ability to restrict entry is the people you don't see.
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  That is, who would like to be a cosmetologist,
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  who would like to be a horsetooth filer, who would like to be a,
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  someone who is an interior designer in some states.
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  What does it take for these individuals to enter the occupation?
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  And if there are barriers, it takes time in terms of going to a school that
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  prepares you for the exam, it takes money, it takes time away from your current job.
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  And this restricts especially low income individuals from entering the occupation.
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  And as you mentioned, the ability to move across state lines.
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  More recently, there's been pushback, and
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  there are about 10 to 15, as many as, depending on how you mention it.
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  Or depending on how you cut it up, there are many states that
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  are reducing the barriers to move across state lines.
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  So this has been a real push over the last several years, and
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  it's been a push that's been supported by the last three presidents.
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  The last three presidents have signed executive
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  orders suggesting that occupational licensing has gone too far.
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  And many states, the governors starting with the state of Arizona have said that.
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  If you move to Arizona and you have an occupational license in another state and
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  are a resident of Arizona, you can immediately practice at occupation.
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  So there's really been a push back to try to reduce some of these
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  barriers both to entering the occupation, which are substantial.
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  And the ability to move across geographic borders in order to work in an occupation.
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  >> Jon Hartley: So I think there's 13 states now maybe that have embraced
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  reciprocal, universal, reciprocal position that Arizona has taken.
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  Where anyone who has a license from out of state can use that license
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  in states like Arizona or I think, even Pennsylvania.
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  I think there's been,
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  I think most of the states are somewhat Republican, but I think not all.
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  I think it is a bipartisan issue.
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  Purple states like Pennsylvania have jumped on this as well.
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  I'm curious, I guess,
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  sort of to take the other side of this on licensing and the sort of rationale.
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  I think the textbook rationale for licensing, it's always been an information
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  economics type argument where there's asymmetric information.
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  And in the labor market, you don't necessarily know if you didn't have any
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  licensing, who would be a good doctor or a bad doctor.
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  And so we need licensing to establish some sort of minimum quality standard.
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  And I'm curious, if we were to sort of go back to blank piece of paper,
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  sort of start from the beginning of imagining that there weren't any
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  licensing regimes out there.
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  How would you think about what occupations should be licensed and what one shouldn't?
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  I'm curious what your thoughts are on the sort of minimum quality standards,
• 17:12
  type of information economics, information asymmetry thinking that usually
• 17:17
  gets applied to this issue of licensing.
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  >> Morris Kleiner: Well, we started out with that way right after the civil war in
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  the US, almost no one was licensed.
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  There were very few occupations, including doctors.
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  So the, the issue for consumers is, was, and
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  which they promoted to their legislatures is you can't tell
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  if someone is a good doctor versus a snake oil salesman.
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  So how do you, and especially for something like health,
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  how do you determine whether someone has the credentials or
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  the knowledge to provide these services?
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  So the first group of occupations that were licensed after the civil
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  war up to the 1920s were occupations that were risky, that is,
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  risky both for the person to enter and risky for the consumer.
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  So you saw the initial kinds of occupations
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  that became licensed were the ones that had the risk,
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  that had a lot of human capital associated dealing with people.
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  These were all the occupations that initially became licensed.
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  In economics, it was called the public interest,
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  that these were occupations where there was risk to the consumers and
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  risk to the practitioners, and they were the first ones to become licensed.
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  Over time, that has sort of shifted to a public
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  interest application of licensing.
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  So you've seen more recently, occupations,
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  as I explained, got together and lobbied the legislature and
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  the governor to say that we really need these occupations.
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  And the public interest rationale, although it's trotted out,
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  has been less important than the public choice view that there
• 19:12
  are more negatives relative to positives in dealing with occupational licensing.
• 19:19
  And that has certainly been the case post World War Two.
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  >> Jon Hartley: It's so interesting, the history of medicine and
• 19:27
  something of interest.
• 19:29
  You go back the late 19th century, in the 18 hundreds,
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  there were a lot of different physician groups that were sort of appearing, and
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  some were sort of considered quacks and things like bloodletting, and
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  all sorts of things were sort of going on.
• 19:44
  But what was interesting is, after things like the Flexner report and things like
• 19:49
  that, there were basically only two groups of schools of thought, of physicians that
• 19:54
  were allowed to continue to exist, the allopaths and the osteopaths.
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  And to this day, there are the two major types of doctors and
• 20:03
  medical schools in the US.
• 20:05
  You have MDs who are the allopaths and the DOs who are the osteopaths,
• 20:10
  and they're generally the same.
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  But some people would tell you that there's some differences.
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  I think DOs do some more holistic sorts of things.
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  But it's interesting thinking about now just how 100 years later,
• 20:25
  the types of doctors and physicians that we have are still sort of influenced
• 20:30
  by those key sort of occupational decisions that were made 100 years ago.
• 20:35
  It's so interesting.
• 20:37
  Now just flash forward to the COVID crisis.
• 20:41
  There was a lot of interesting things that were being done at that time when
• 20:46
  it came to temporary licensing.
• 20:48
  And I'm curious what your thoughts were on this.
• 20:51
  Obviously, Covid was a huge crisis and very unexpected for a lot of people.
• 20:56
  And I remember during certain parts of COVID during the earlier parts,
• 21:01
  when there were shortages of nurses and medical professionals and
• 21:06
  doctors in places like New York City, in New York state,
• 21:10
  there were changes that were made that allowed, for
• 21:14
  example, I think, medical students to, you know, for example,
• 21:19
  get more involved and things that they would otherwise not be able to.
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  There was also, I think,
• 21:25
  some sort of reciprocity that allowed out of state doctors to move around.
• 21:29
  I'm curious, like, is that, in your mind,
• 21:31
  sort of contributed to sort of a shift in some of the thinking around?
• 21:34
  Maybe some of these occupational licensing are, and
• 21:38
  certainly the fact that you can't move across states without
• 21:43
  having to do all sorts of more training as a licensed worker.
• 21:47
  Do you think that any of this has sort of shifted
• 21:50
  the needle on people's thinking around licenses?
• 21:53
  Or I'm curious, like,
• 21:55
  who you think the big enemies are of licensing reform in general?
• 21:59
  >> Morris Kleiner: Well, I think you very appropriately bring out the issue of what
• 22:04
  we called battlefield commissions.
• 22:07
  So respiratory therapists, as you alluded to, or
• 22:11
  physicians who had not passed a licensing exam were issued
• 22:16
  temporary licenses during COVID and allowed them to practice.
• 22:22
  Individuals who were nurses who were retired and had let their licenses
• 22:27
  lapse were brought back into the fold to take care of very sick patients.
• 22:33
  So this was really an issue that the exogenous
• 22:38
  shock of COVID really had a significant effect on licensing.
• 22:46
  And many governors allowed individuals who were not fully licensed to work,
• 22:51
  but they were temporary licenses.
• 22:54
  So once COVID started to wane, these individuals were
• 22:58
  not allowed to work and their temporary licenses lapsed,
• 23:03
  and they had to go through the full licensing procedure.
• 23:08
  The only state that was an exception to that was Massachusetts,
• 23:13
  that allowed a number of occupations who had these battlefield commissions
• 23:18
  to continue practicing.
• 23:20
  What effect that has had on licensing?
• 23:23
  Certainly since COVID there's been a large
• 23:27
  relaxation of occupational licensing criteria.
• 23:31
  Perhaps the biggest example is, as we've discussed,
• 23:35
  the ability to move across state lines and
• 23:38
  the number of states that have allowed individuals to move to their state,
• 23:43
  and they have accepted their license largely not fully.
• 23:47
  There are all sorts of exceptions, and
• 23:50
  the occupations really have started to push back.
• 23:54
  That is,
• 23:55
  they said that individuals who come from a state that don't have the high.
• 24:00
  Standards that we do, that they will put barriers, that is,
• 24:05
  they must meet the requirements of the state they're moving to,
• 24:10
  or equivalent to those standards in order to work.
• 24:15
  So when, yes, there's been a relaxation, but perhaps not as much as perhaps
• 24:20
  some people have wanted, and you are getting the pushback from the professions.
• 24:25
  I started out this conversation by talking about unions and
• 24:29
  perhaps the power that they might have in the legislature.
• 24:34
  They are weak compared to groups like lawyers,
• 24:38
  doctors, dentists, barbers, cosmetologists.
• 24:43
  They have a lot more weight to throw around state legislatures than
• 24:47
  almost any union you could think of.
• 24:51
  >> Jon Hartley: It's amazing.
• 24:52
  It's so interesting to think about just how powerful some of these
• 24:55
  professions are in DC.
• 24:57
  You know, of course, a lot of them have their own offices and
• 25:01
  buildings there and are very active on Capitol Hill.
• 25:04
  I know, Morris, you're probably the most sought after person when it comes
• 25:09
  to occupational licensing policy across states and in Washington, DC.
• 25:14
  I know you're in very, very high demand from policymakers.
• 25:18
  Also, you're an academic not only by training, but
• 25:22
  being a professor is your primary appointment.
• 25:25
  I'm curious about your thinking about where occupational licensing fits into
• 25:30
  labor economics in academia.
• 25:32
  I think you're maybe 30 years ago,
• 25:36
  one of the few people in academic economics,
• 25:40
  in labor economics really focused on occupational licensing.
• 25:46
  And since then, I think, thanks to a lot of your initial work,
• 25:51
  a lot of other labor economists have joined in.
• 25:54
  I think people, economists like Alan Krueger,
• 25:58
  I think Peter Blair, I think Evan Soltas and others.
• 26:03
  Are you excited to see all these young scholars jumping into
• 26:07
  occupational licensing?
• 26:09
  I'm curious of what your thoughts are on how occupational licensing is
• 26:14
  blossoming in your mind.
• 26:16
  Should more scholars be studying occupational licensing?
• 26:19
  And in your mind, what are the areas that you think need more
• 26:24
  work to be done from an academic perspective on this issue?
• 26:30
  >> Morris Kleiner: Well, thank you for the kind remarks.
• 26:34
  I think, as Larry Summers would say, my father would have been very proud and
• 26:41
  my mother would have actually believed it.
• 26:45
  So thank you for the kind remarks.
• 26:47
  However, I'm really glad that there are a number of scholars who
• 26:52
  have taken up at looking and examining the role of occupational licensing,
• 26:58
  both in terms of how it got started, how it evolved, and what its effects are.
• 27:05
  I think when you talk about licensing, it's also, I look at the numbers,
• 27:09
  I look at the models, and that's sort of my job as an academic.
• 27:13
  But it's also important to remember that these are people who are trying to get
• 27:18
  into, trying to figure out, find legitimate work, trying to become a barber
• 27:23
  trying to become a cosmetologist, trying to become a plumber, an electrician.
• 27:29
  And it's how hard some of these barriers are in terms of trying to
• 27:34
  get into these occupations that will move them from the 10th
• 27:39
  percentile to the 30th or 40th percentile, and
• 27:43
  that these barriers really serve to limit their ability to make an honest living.
• 27:49
  So I think that's what, that sort of motivates me.
• 27:54
  And I think just looking at the barriers and also just looking, what do we buy?
• 28:00
  Licensing, as Tom Sowell has always mentioned, that there are trade offs, that
• 28:05
  by putting these barriers, yes, people who are in the occupations make more money,
• 28:10
  but what happens to the people who couldn't get into the occupations?
• 28:14
  What are they doing?
• 28:16
  So a lot of the work really ought to look at what happens to people who can't get
• 28:21
  into, get on the boat, get on the lifeboat with other people swimming around.
• 28:27
  I think that that's an important issue to think about.
• 28:30
  Also internationally, there's been much less work on occupational licensing
• 28:36
  in the European Union, in the Organization for Economic Cooperation and
• 28:41
  Development, in Southeast Asia, in China, in South America.
• 28:46
  There's very little that is known about the role of occupational
• 28:50
  licensing in these nations.
• 28:52
  So I think it's really important for scholars, especially outside the US,
• 28:58
  to see if what happens in the US, that is, occupational licensing raises wages,
• 29:03
  it increases hours of work, and it restricts entry.
• 29:07
  And as a result,
• 29:09
  a lot of people who would like to work in certain occupations just can't do it.
• 29:15
  >> Jon Hartley: Well, it's amazing.
• 29:16
  It's so exciting hearing about all these avenues for
• 29:20
  future research for economists to do.
• 29:24
  And hopefully some will come along and pursue, if not yourself,
• 29:27
  Morris because I feel like you're so prolific in all your occupational
• 29:31
  licensing work that you're doing, continuing to do.
• 29:34
  It's so exciting, and hopefully we'll have more answers on these issues soon.
• 29:39
  And it'll be interesting to see how patient licensing policy evolves across
• 29:44
  states in the decades to come and whether or not maybe there will be some reversal
• 29:49
  in just how tight occupational licensing regulation has become.
• 29:53
  It's a real honor to talk to you, Morris.
• 29:55
  You've been a real trailblazer in labor economics, in really starting this
• 30:01
  field of studying occupational licensing and its labor market consequences.
• 30:07
  I want to thank you so much, Morris, for joining us today on the podcast.
• 30:10
  >> Morris Kleiner: Well, thank you very much for having me.
• 30:12
  Really appreciate the opportunity to talk to you and to your listeners.
• 30:17
  >> Jon Hartley: Thank you so much, Morris.
• 30:19
  Today our guest was Morris Kleiner, who is the AFL-CIO Chair in Labor Policy
• 30:24
  at the Humphrey School of Public Affairs at the University of Minnesota.
• 30:30
  This is the capitalism and freedom in the 21st Century podcast,
• 30:33
  where we talk about economics, markets and public policy.
• 30:36
  I'm Jon Hartley, your host.
• 30:37
  Thanks so much for joining us.