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Sherman Rogers. Part two provides background information on the Lochner Era of Supreme Court jurisprudence, the aftermath of the Lochner Era, and a brief history of the issues involved in state occupational licensing requirements. Part three discusses and evaluates recent cases of note—primarily the decisions in Patel and Sensational Smiles.
On balance, however, there is a greater focus on the Patel case because of the expansive, innovative, and scholarly nature of the multiple opinions that the case produced.
These losses originate from two sources. Kleiner, Alan B. First, licensing causes wealth transfers from consumers to licensed workers who can charge higher prices for their services. Second, licensing reduces efficiency. Johnson and Morris M. Although actual costs may differ from preliminary and rough estimates, past research suggests that reforms could lead to higher rates of employment in the licensed fields. Licensing may affect the wages of licensed workers in two ways. First, licensing can improve the quality of services by barring low-quality workers from an industry.
Wages then rise for licensed workers because of the higher-quality services they provide. Second, licensing may insulate workers from competition by restricting the supply of services in a licensed occupation. Whatever the reason for these increases in cost, consumers pay the difference.
The difference between an actual wage and what that wage would be without licensing is known as a wage premium. Estimates of the size of the wage premium vary widely depending on the occupations studied and the empirical method and data used.
Because licensed workers tend to have higher education levels than unlicensed workers, a simple comparison of wages between licensed and unlicensed workers is misleading. To get around this issue, many researchers compare wages of licensed workers to wages of unlicensed workers in similar occupations, or to wages of workers in the same job in a state where licensing is not required. Using this approach, Kleiner finds an average wage premium of 10 to 12 percent for licensed occupations.
A study specific to massage therapists similarly finds a Thornton and Edward J. Other recent estimates range anywhere from 0 to 18 percent, though most fall in the range of 6 to 15 percent, with lower estimates generally relying on newer and more accurate data. Although licensing provides a wage premium for most licensed workers, the premium is higher in some occupations than others. Occupations that involve more independent work and less subordination to superiors for example, dentists rather than dental hygienists tend to have higher wage premiums.
Lawyers and doctors experience higher wage premiums due to licensing than barbers or nurses, likely because of the more rigorous licensing requirements for these occupations. In other words, those in wealthier professions generally receive higher wage premiums than those in lower-income occupations. In addition to variations in wage premium by occupation, there are also differences based on worker characteristics such as race and gender.
A paper shows that minorities and women receive higher wage premiums than white men. For example, black women and white women both obtain higher wage premiums than white men. Blair and Bobby W. Wage premiums mean higher prices for consumers, which could be justified on the grounds that licensing provides proportional increases in quality.
Yet evidence for and against quality improvement due to licensing is mixed. In a paper, Stanford economist Hayne Leland summarized the benefits of licensing for improving quality.
He explains that licensing generally arises in markets where one party knows more than the other, such as medicine, where for instance a parent does not have an easy way to ascertain the quality of a pediatrician. If people cannot tell good doctors from bad, then doctors as a group will have to charge lower prices. This, in turn, could prompt the good doctors to leave the market, preventing consumers from receiving high-quality care. Ideally, licensing serves as a quality assurance mechanism that not only informs customers but gives quality service providers a reason to remain in the market.
While licensing may provide a useful way to indicate minimum standards of quality, empirical studies suggest it does not necessarily improve quality. In a study, professors Morris Kleiner and Robert Kudrle find that dental outcomes are not improved by more stringent licensing for dentists.
Kleiner and Robert T. One paper concluded that allowing nurses to perform services that had previously been reserved for doctors lowered prices for consumers without worsening health outcomes. Another study of the effects of licensing laws for nurses found no effect on quality of care and even some evidence of benefits of lesser restrictions for nurses. It concludes that, instead of improving quality, licensing laws primarily serve as barriers to care. Licensing may have little effect on quality if the licensure process does not improve the skills or knowledge of licensed workers.
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