On The History of Occupational Licensing in the U.S.

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>> Jon Hartley: I'm Jon Hartley, your host.

Today I'm joined by Morris Kleiner, who is the AFL-CIO Chair in Labor Policy at the Humphrey School of Public Affairs at the University of Minnesota. Morris is a labor economist and the world's leading authority on occupational licensing, which he studied for decades as an economist. Welcome, Morris.

>> Morris Kleiner: Well, thank you and delighted to be with you.

>> Jon Hartley: I want to start by talking about your origin story. And you were born in a displaced person's camp in Germany after World War Two. Both your parents were Holocaust survivors. Tell me about your whole story of growing up and your family's story and how you came to America.

You almost came to Canada. Tell us a little bit more about your origin story.

>> Morris Kleiner: Glad to. Certainly, my origin started at a very low level. My father, who was in Poland and lived in a very small town, he was Jewish. And one of the Holocaust survivor, he tried to, it started, he tried to escape.

But when Germany invaded Russia, he came back to Poland and through a number of circumstances, one of which was they put his father in jail and said that they were going to kill him unless they got someone who was young at the time. And he traded his life for his father, although in the long run, didn't turn out well for his father.

But was put into a work camp in a place called Starkowitz and then was shipped to Auschwitz and then finally to Dachau. And he met my mother after the war and her whole family was murdered. And they met in a displaced persons camp. If you've ever seen the Steven Spielberg saga of the liberation of the camps, my father was liberated at Landsberg, and that's where they met.

And they came. They were fortunate. There was an opening to come to the United States. They took it. My father worked as a laborer, made mattresses in Peoria, Illinois, and was very happy to be in the United States, especially given the very difficult life. And things started out for him.

And I grew up in Peoria, and things turned out well for me. Went to school. First person in my family to go to college and fortunate enough to get funding. And also my wife Sally was a huge help throughout my academic career. Went to the University of Illinois, got a PhD in economics, and then went to the University of Kansas, spent time in DC at the Brookings Institution and at the Department of Labor.

And following that, got a position at the University of Minnesota in 1987 and have been there ever since and have really enjoyed my time as an academic and being at the University of Minnesota. That's fantastic and what an amazing story, and I'm so sorry about your parents' family.

I mean, it's really just one of the worst tragedies in all of human history.

>> Jon Hartley: I'm curious, so you also served in the us military, too. Tell us a little bit about that and what got you interested in labor economics to begin with, and occupational licensing, which you're very well known for.

And I think you are the single leading authority on occupational licensing. I'm curious, how did that all happen?

>> Morris Kleiner: Well, it happened when I was at the Brookings Institution. I was farmed out to the Department of Labor, and I was the new person at the Department of Labor.

And my boss called me in and said, we have this project some congressman wants to know about occupational licensing. You're the new kid on the block. I'm giving this to you. And I said, what had I done to him to get this terrible assignment? And I started getting into it, found out how interesting it was, saw that Milton Friedman had thought it was a very important issue and got into it.

And I was also, by the way, doing a lot of work with a number of colleagues, including Richard Freeman at Harvard, who really piqued my interest in collective bargaining, labor relations. And I really saw a lot of very close parallels between what happens with labor unions and what they do and what happens with occupational licensing.

So it was very much a parallel type of analysis to look both at collective bargaining unions and what they do with respect to, in one case, raising wages as occupational licensing does and what it does for prices and consumers.

>> Jon Hartley: Well, I mean, it's so interesting. Milton Friedman wrote his doctoral dissertation on this topic of occupational licensing.

He wrote about this in the early 20th century. And he famously, I think, later talked about doctors and how doctor licensing, physician licensing sort of made doctors almost as if they were sort of unionized in a sense. But I'm curious, what is your understanding of how Milton Friedman's dissertation came about?

And I know, like, I think famously, the American Medical association sort of tried to block its publication dissertation. He turned it into a book, which turned into something that was co-authored with, I think Simon Kuznets who was his advisor at Columbia. And then they published that, I think, called Incomes from independent professional practice.

But it's amazing because he was writing about it then when. I think occupational licensing as a macro issue was a lot smaller. As unionization has become less and less popular, fewer unions, fewer union members across the US, occupational licensing has quickly risen and become, I think, the largest labor institution in the US.

About 25%, I think, or so of all workers in the US have some sort of occupational license. Meanwhile, in this group, from probably single digits or around there in sort of 1950, whereas in 1950, probably a third of the US labor force was unionized and that's dropped, I think, less than 10%.

I'm curious, what do you think about this sort of macro trend? And you've been following it very closely, following many professions. One, how did you get interested? Was it really Friedman that got you interested in occupational licensing? And what do you think are the biggest issues in occupational licensing, and what do you think has contributed to its rise over the past, say, 70 years or so?

Well, I hate to disappoint you, but what got me interested in occupational licensing was my boss assigning me this topic.

>> Morris Kleiner: But I really found the work as a result of that. It was a serendipitous event, but I found Milton Friedman's work. I found it very compelling and very interesting.

I was fortunate enough to be asked to write for an Oxford University press book dealing with Milton Friedman's contributions to economics. And I was asked to write the chapter on occupational licensing. But as you correctly point out, licensing grew from about one in 20 workers to now one in four workers have attained.

And that's the difference between coverage and attainment. It may be sort of in the weeds. Coverage is engineers, so every engineer is covered by a law. But less than half, probably closer to one in four engineers, have actually gotten an occupational license, similarly with accountants. But the numbers that are used is, yes, about one in four workers have attained an occupational license, but many more are covered by a license.

And why has this happened? Why is the current period different than the period right after world War two? Part of it is really structural shifts. After World War two, the dominant employer was in manufacturing, General Motors, Ford, Chrysler. And those workers didn't need an occupational license. The employer chose who they wanted but since that time, there's been a real structural shift to services.

And that if you're a steel worker in 1950 and now you're a personal trainer, the personal trainer needs a license where the steel worker didn't. And that's been a large part of the shift from manufacturing to services. And manufacturing unions dominated in services what has taken substituted for unions has been occupational licensing.

Now, occupations that require licensing, they typically skew towards the lower end of the income distributions.

>> Jon Hartley: Is that sort of a good generalization to make?

>> Morris Kleiner: Well, certainly there are occupations both at the lower and higher end. So at the higher end, you think of the traditional ones that were licensed after the civil war.

So doctors, dentists in the 1920s, nurses, so those are the high end occupations. More recently, following World War two, it has been the lower income occupations. So there's development of new occupations like dental hygienists, like physicians assistants, like nurse practitioners. All those are evolving occupations. And when the way licensing develops, you get a number of people who are doing the same thing.

They get together, they form an organization, they tax their members, they take those taxes and then lobby the legislature or the governor. In the US, licensing is really a state by state role, so that about 80% of all licenses are at the state level. And the organizations lobby the legislators and the governors.

And if they're successful, which many have been in the post World War Two period, they establish an occupational license for that occupation. Which says only people who have government positions and can use the police powers of the state can work for pay in that occupation.

>> Jon Hartley: So I think there is a sense in the policy sphere that there is an excessive amount of occupational licensing.

And you hear about certain professions, for example, that may not even be necessarily the most high skilled jobs out there, nail technicians or braiders, for example. Or hairdressers that don't necessarily need significant amounts of training, but are licensed and have state licenses that also don't necessarily aren't recognized in other states.

So if you're a nail tech or a hairdresser in, say, Maryland, you may in your license there. You may not be able to actually go work in, say, Virginia, one state over is that a big macro trend in occupational licensing? I'm curious what your thoughts are on that idea that occupational licensing has grown so far that.

It's actually one having negative consequences in the labor market in terms of labor mobility and people actually just trying to find work. I'm curious what your thoughts are on that criticism of occupational licensing growing a bit too far.

>> Morris Kleiner: Well, certainly, and the groups that really need to focus or try to get monopoly rights more recently have been these lower level occupations.

So in order to become a cosmetologist in most states, you need 1500 hours of classwork and or practicum. That's more hours than it takes to get a law degree in most states. And what has happened as occupations have grown in terms of their ability to restrict entry is the people you don't see.

That is, who would like to be a cosmetologist, who would like to be a horsetooth filer, who would like to be a, someone who is an interior designer in some states. What does it take for these individuals to enter the occupation? And if there are barriers, it takes time in terms of going to a school that prepares you for the exam, it takes money, it takes time away from your current job.

And this restricts especially low income individuals from entering the occupation. And as you mentioned, the ability to move across state lines. More recently, there's been pushback, and there are about 10 to 15, as many as, depending on how you mention it. Or depending on how you cut it up, there are many states that are reducing the barriers to move across state lines.

So this has been a real push over the last several years, and it's been a push that's been supported by the last three presidents. The last three presidents have signed executive orders suggesting that occupational licensing has gone too far. And many states, the governors starting with the state of Arizona have said that.

If you move to Arizona and you have an occupational license in another state and are a resident of Arizona, you can immediately practice at occupation. So there's really been a push back to try to reduce some of these barriers both to entering the occupation, which are substantial. And the ability to move across geographic borders in order to work in an occupation.

>> Jon Hartley: So I think there's 13 states now maybe that have embraced reciprocal, universal, reciprocal position that Arizona has taken. Where anyone who has a license from out of state can use that license in states like Arizona or I think, even Pennsylvania. I think there's been, I think most of the states are somewhat Republican, but I think not all.

I think it is a bipartisan issue. Purple states like Pennsylvania have jumped on this as well. I'm curious, I guess, sort of to take the other side of this on licensing and the sort of rationale. I think the textbook rationale for licensing, it's always been an information economics type argument where there's asymmetric information.

And in the labor market, you don't necessarily know if you didn't have any licensing, who would be a good doctor or a bad doctor. And so we need licensing to establish some sort of minimum quality standard. And I'm curious, if we were to sort of go back to blank piece of paper, sort of start from the beginning of imagining that there weren't any licensing regimes out there.

How would you think about what occupations should be licensed and what one shouldn't? I'm curious what your thoughts are on the sort of minimum quality standards, type of information economics, information asymmetry thinking that usually gets applied to this issue of licensing.

>> Morris Kleiner: Well, we started out with that way right after the civil war in the US, almost no one was licensed.

There were very few occupations, including doctors. So the, the issue for consumers is, was, and which they promoted to their legislatures is you can't tell if someone is a good doctor versus a snake oil salesman. So how do you, and especially for something like health, how do you determine whether someone has the credentials or the knowledge to provide these services?

So the first group of occupations that were licensed after the civil war up to the 1920s were occupations that were risky, that is, risky both for the person to enter and risky for the consumer. So you saw the initial kinds of occupations that became licensed were the ones that had the risk, that had a lot of human capital associated dealing with people.

These were all the occupations that initially became licensed. In economics, it was called the public interest, that these were occupations where there was risk to the consumers and risk to the practitioners, and they were the first ones to become licensed. Over time, that has sort of shifted to a public interest application of licensing.

So you've seen more recently, occupations, as I explained, got together and lobbied the legislature and the governor to say that we really need these occupations. And the public interest rationale, although it's trotted out, has been less important than the public choice view that there are more negatives relative to positives in dealing with occupational licensing.

And that has certainly been the case post World War Two.

>> Jon Hartley: It's so interesting, the history of medicine and something of interest. You go back the late 19th century, in the 18 hundreds, there were a lot of different physician groups that were sort of appearing, and some were sort of considered quacks and things like bloodletting, and all sorts of things were sort of going on.

But what was interesting is, after things like the Flexner report and things like that, there were basically only two groups of schools of thought, of physicians that were allowed to continue to exist, the allopaths and the osteopaths. And to this day, there are the two major types of doctors and medical schools in the US.

You have MDs who are the allopaths and the DOs who are the osteopaths, and they're generally the same. But some people would tell you that there's some differences. I think DOs do some more holistic sorts of things. But it's interesting thinking about now just how 100 years later, the types of doctors and physicians that we have are still sort of influenced by those key sort of occupational decisions that were made 100 years ago.

It's so interesting. Now just flash forward to the COVID crisis. There was a lot of interesting things that were being done at that time when it came to temporary licensing. And I'm curious what your thoughts were on this. Obviously, Covid was a huge crisis and very unexpected for a lot of people.

And I remember during certain parts of COVID during the earlier parts, when there were shortages of nurses and medical professionals and doctors in places like New York City, in New York state, there were changes that were made that allowed, for example, I think, medical students to, you know, for example, get more involved and things that they would otherwise not be able to.

There was also, I think, some sort of reciprocity that allowed out of state doctors to move around. I'm curious, like, is that, in your mind, sort of contributed to sort of a shift in some of the thinking around? Maybe some of these occupational licensing are, and certainly the fact that you can't move across states without having to do all sorts of more training as a licensed worker.

Do you think that any of this has sort of shifted the needle on people's thinking around licenses? Or I'm curious, like, who you think the big enemies are of licensing reform in general?

>> Morris Kleiner: Well, I think you very appropriately bring out the issue of what we called battlefield commissions.

So respiratory therapists, as you alluded to, or physicians who had not passed a licensing exam were issued temporary licenses during COVID and allowed them to practice. Individuals who were nurses who were retired and had let their licenses lapse were brought back into the fold to take care of very sick patients.

So this was really an issue that the exogenous shock of COVID really had a significant effect on licensing. And many governors allowed individuals who were not fully licensed to work, but they were temporary licenses. So once COVID started to wane, these individuals were not allowed to work and their temporary licenses lapsed, and they had to go through the full licensing procedure.

The only state that was an exception to that was Massachusetts, that allowed a number of occupations who had these battlefield commissions to continue practicing. What effect that has had on licensing? Certainly since COVID there's been a large relaxation of occupational licensing criteria. Perhaps the biggest example is, as we've discussed, the ability to move across state lines and the number of states that have allowed individuals to move to their state, and they have accepted their license largely not fully.

There are all sorts of exceptions, and the occupations really have started to push back. That is, they said that individuals who come from a state that don't have the high. Standards that we do, that they will put barriers, that is, they must meet the requirements of the state they're moving to, or equivalent to those standards in order to work.

So when, yes, there's been a relaxation, but perhaps not as much as perhaps some people have wanted, and you are getting the pushback from the professions. I started out this conversation by talking about unions and perhaps the power that they might have in the legislature. They are weak compared to groups like lawyers, doctors, dentists, barbers, cosmetologists.

They have a lot more weight to throw around state legislatures than almost any union you could think of.

>> Jon Hartley: It's amazing. It's so interesting to think about just how powerful some of these professions are in DC. You know, of course, a lot of them have their own offices and buildings there and are very active on Capitol Hill.

I know, Morris, you're probably the most sought after person when it comes to occupational licensing policy across states and in Washington, DC. I know you're in very, very high demand from policymakers. Also, you're an academic not only by training, but being a professor is your primary appointment. I'm curious about your thinking about where occupational licensing fits into labor economics in academia.

I think you're maybe 30 years ago, one of the few people in academic economics, in labor economics really focused on occupational licensing. And since then, I think, thanks to a lot of your initial work, a lot of other labor economists have joined in. I think people, economists like Alan Krueger, I think Peter Blair, I think Evan Soltas and others.

Are you excited to see all these young scholars jumping into occupational licensing? I'm curious of what your thoughts are on how occupational licensing is blossoming in your mind. Should more scholars be studying occupational licensing? And in your mind, what are the areas that you think need more work to be done from an academic perspective on this issue?

>> Morris Kleiner: Well, thank you for the kind remarks. I think, as Larry Summers would say, my father would have been very proud and my mother would have actually believed it. So thank you for the kind remarks. However, I'm really glad that there are a number of scholars who have taken up at looking and examining the role of occupational licensing, both in terms of how it got started, how it evolved, and what its effects are.

I think when you talk about licensing, it's also, I look at the numbers, I look at the models, and that's sort of my job as an academic. But it's also important to remember that these are people who are trying to get into, trying to figure out, find legitimate work, trying to become a barber trying to become a cosmetologist, trying to become a plumber, an electrician.

And it's how hard some of these barriers are in terms of trying to get into these occupations that will move them from the 10th percentile to the 30th or 40th percentile, and that these barriers really serve to limit their ability to make an honest living. So I think that's what, that sort of motivates me.

And I think just looking at the barriers and also just looking, what do we buy? Licensing, as Tom Sowell has always mentioned, that there are trade offs, that by putting these barriers, yes, people who are in the occupations make more money, but what happens to the people who couldn't get into the occupations?

What are they doing? So a lot of the work really ought to look at what happens to people who can't get into, get on the boat, get on the lifeboat with other people swimming around. I think that that's an important issue to think about. Also internationally, there's been much less work on occupational licensing in the European Union, in the Organization for Economic Cooperation and Development, in Southeast Asia, in China, in South America.

There's very little that is known about the role of occupational licensing in these nations. So I think it's really important for scholars, especially outside the US, to see if what happens in the US, that is, occupational licensing raises wages, it increases hours of work, and it restricts entry.

And as a result, a lot of people who would like to work in certain occupations just can't do it.

>> Jon Hartley: Well, it's amazing. It's so exciting hearing about all these avenues for future research for economists to do. And hopefully some will come along and pursue, if not yourself, Morris because I feel like you're so prolific in all your occupational licensing work that you're doing, continuing to do.

It's so exciting, and hopefully we'll have more answers on these issues soon. And it'll be interesting to see how patient licensing policy evolves across states in the decades to come and whether or not maybe there will be some reversal in just how tight occupational licensing regulation has become.

It's a real honor to talk to you, Morris. You've been a real trailblazer in labor economics, in really starting this field of studying occupational licensing and its labor market consequences. I want to thank you so much, Morris, for joining us today on the podcast.

>> Morris Kleiner: Well, thank you very much for having me.

Really appreciate the opportunity to talk to you and to your listeners.

>> Jon Hartley: Thank you so much, Morris. Today our guest was Morris Kleiner, who is the AFL-CIO Chair in Labor Policy at the Humphrey School of Public Affairs at the University of Minnesota. This is the capitalism and freedom in the 21st Century podcast, where we talk about economics, markets and public policy.

I'm Jon Hartley, your host. Thanks so much for joining us.