Hartley and Kleiner have a new staff at the Minneapolis Fed that examines papers around the world to measure job approvals by country. In the United States, occupational licenses have increased significantly over time, so one would expect licenses to increase with income. Their headline result is different: occupational licensing is negatively correlated with GDP per capita. Many developing countries such as India, South Africa, and the Philippines have multiple operating licenses Denmark, Sweden and France have relatively little. Similarly, countries rank low in measures of government quality, such as regulatory quality, political stability, rule of law, and corruption More occupational licenses.
I do have a concern, however. India’s figure of 42% of workers requiring a government license appears to be too high. Admittedly this is the home of the License Raj but I am concerned about the results of the survey. To mark a vetted worker as requiring an occupational license HK requires that the worker a) has a license and b) requires a license to work in their occupation. But in India there are many unlicensed workers and a license is required to do their job–HK, however, consider these workers confused and leave them out of the analysis. That’s fine for a developed country where there aren’t many illegal unlicensed workers but, as the authors discuss later, informality is very high in India so illegal work is rare.
Including these workers would make the real Indian figure much higher than the HK report but I think with such a high level of lawlessness we should also ask ourselves if survey respondents in India are answering the same way as in Germany. Perhaps they report that a license is not required because very few workers have one. In India, for example, as many as 60% of “licensed” drivers have fake or incorrect licenses and many have no licenses at all, so perhaps workers are underreporting the truth.
Within the United States, the profession is regulated in some states but not in others—Louisiana, for example, requires florists to be licensed. (Do licensed Louisiana florists produce better, safer arrangements? I don’t think so.) Given this variation even within a single state, we would expect greater variation across states. Many independent surveys—not just HK—confirm that Denmark, Sweden, and France have fewer occupational licenses than the United States. Since these countries have a high government capacity, we can exclude the idea that the licensing is for safety or quality. The implication is clear: job approval is often about recruiting, not quality assurance.
Addendum: See also my review of Allensworth’s The Licensing Racket which finds that the licensing board spends more of its time and energy on controlling entry than quality and my paper on the dramatic cancellation of licenses to operate in the funeral industry in Colorado.
