How Much-Criticized Occupational Licenses May Reduce Pay Inequality – Prof. Peter Blair w/ PhD Candidate Bobby Chung – The Wall Street Journal

August 14, 2017

The rising number of U.S. workers who need a government-mandatedlicense to do their job has become a target for liberal and conservative reformers looking for ways to revive the economy’s dynamism. Advocates for overhauling the current system say it can discourage people from entering desirable careers or relocating across state lines, while raising prices for consumers. Who benefits? Those who get licensed, who earn more than other Americans. And new research shows their pay is more equal as well, with occupational licenses appearing to boost earnings for women and black men relative to higher-paid white men. “The traditional view has been that the license is just a barrier to entry,” said Clemson University economist Peter Blair, who co-authored the paper with Clemson graduate student Bobby Chung. But, he said in an interview, licenses also provide potential employers with information about the workers who have them: Many require special training or bar people with criminal records. The study suggests women are rewarded because a license signals training and job skills, while black men benefit when a license signals they don’t have a felony conviction. “Licensing may not be the most efficient way to convey this information, but we need to acknowledge that licensing is providing this information,” Mr. Blair said. Occupational licenses have become a popular and bipartisan target for policy makers. President Barack Obama’s administration in 2015 said a quarter of all workers fell under state licensing requirements. describing an inefficient patchwork of laws and regulations that weigh on workers and the economy at large. President Donald Trump’s labor secretary, Alexander Acosta, last week urged state officials to reduce what he described as excessive licensing; “Our goal should be to expand opportunities for Americans, not limit them,” he said. The new analysis by Messrs. Blair and Chung, circulated this summer in a working paper through the Human Capital and Economic Opportunity Global Working Group at the University of Chicago, looked at data on worker earnings and licensing requirements. They found licensing reduced the wage gap between black men and white men by 43%, compared with nonlicensed workers, and shrank the pay gap between women and white men between 36% and 40%. They also identified likely channels for how employers took signals from occupational licenses, based on training requirements and whether licenses were limited to nonfelons. The paper isn’t a full-throated argument that licenses should be preserved in their current form. But it offers a warning that employers crave information about potential employees that licenses now provide. Well-meaning reforms to the occupational¬≠ licensing system could have the unintended consequence of worsening discrimination in hiring. “This is helping us to understand the institution of licensing,” Mr. Blair said. “In order to reform something, we need to understand it.” The new paper echoes other recent research that found “ban the box” laws intended to help Americans with criminal records apply for jobs may exacerbate racial discrimination, as some employers deprived of information about job applicants’ criminal records instead discriminate broadly against men of color. “It’s a bit troubling,” Mr. Blair said. “Why is it so important for black men to signal that they’re not felons?” Wall Street Journal


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