Income Inequality and Occupational Licensing


An essay in The Economist gives a quick overview of current thinking on occupational licensing, with an emphasis on its role in driving up the income of those who make it through the obstacle course, especially for higher-income professions:

More educated workers reap bigger wage gains from licensing. Writing in the Journal of Regulatory Economics in 2017, Morris Kleiner of the University of Minnesota and Evgeny Vorotnikov of Fannie Mae, a government housing agency, found that licensing was associated with wages only 4-5% higher among the lowest earning 30% of workers. Among the highest 30% of earners, the licensing wage boost was 10-24%.

So, at the low end, overly burdensome licensing keeps poor people poorer by preventing their experimentation with occupations, and at the high end, it keeps rich people richer by cutting down on their competition and preventing innovation.  Consider:

The medical and legal professions account for around a quarter of the top 1% of earners, whose incomes have grown faster in America than in other rich countries in recent decades. A study published in Health Affairs, a journal, in June 2015 found that the average doctor earns about 50% more than comparably educated and experienced people in other fields. Another study, from 2012, put the wage premium from working in law at 23%.

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Doctors are also unusually well-paid compared with those in other countries. The average general practitioner earns $252,000 and the average specialist $426,000, according to the Bureau of Labour Statistics. According to OECD data on a handful of other rich countries, the averages there were $130,000 for generalists and $273,000 for specialists in 2014. (These figures adjust for differences in living costs, and include only self-employed doctors, who tend to earn more.)

Here we come to one of those areas of irreconcilable difference.  Some want to address, for example, the shortage of doctors and high cost of medical care by giving government more control over the health care industry.  Others suggest opening up the market.  We can’t go in both directions at once, in health care or any other industry.

If we have some agreement that the problem is greed’s leading to undue advantage, which way do we go?  Well, if we agree that people will pursue their self interests, we can deduce that they will attempt to use consolidated government power to serve those interests, if they can, and exit a market that doesn’t allow them to make enough profit, if they can’t.

  • Rhett Hardwick

    A few thoughts. High income doctors and lawyers might be doorstops in Silicon Valley, so choices were made. Doctor’s fees pale beside “health care”, just recently a friend had a ankle worked on (and other matters) his bill was $145,000 (he’s “frugal”, that is more than he has spent on cars in his entire life). The doctor fees were around $7,000. Aren’t nurses in the $75-100,000 range? Slightly less than my plumber makes (he is doing better than average). Of course, there is a “pecking order”. If the surgeons are making 500K, the hospital administrator has to do better. Aren’t all these people licensed?

  • guest

    The extremists don’t need no stinkin’ gubment to license doctors.