Occupational licensing
Occupational licensing, also called licensure, is a form of government regulation requiring a license to pursue a particular profession or vocation for compensation. It is related to occupational closure.
Some claim higher public support for the licensing of professions whose activities could be a health or safety threat to the public, such as practicing medicine, and doctors require occupational licenses in most developed countries. However, some jurisdictions also require licenses for a much wider range of professions, such as florists and hairdressers.
Licensing creates a regulatory barrier to entry into licensed occupations. Licensing advocates argue that it protects the public interest by keeping incompetent and unscrupulous individuals from working with the public. However, there is little evidence that it affects the overall quality of services provided to customers by members of the regulated occupation. Scholars have raised concerns that licensing boards frequently enact arbitrary standards that hinder competition while also turning a blind eye towards unethical behavior by incumbent practitioners. It can also harm consumers by raising prices and reducing innovation by new market entrants, and may slow overall economic growth. Some occupational licensing can violate competition law due to anti-competitive practices.
Alternatives to individual licensing include only requiring that at least one person on a premises be licensed to oversee unlicensed practitioners, permitting of the business overall, random health and safety inspections, general consumer protection laws, and deregulation in favor of voluntary professional certification schemes or free market mechanisms such as customer review sites. Some studies find consumers are more responsive to reviews than to occupational licensing status.
History
Traditionally, occupations in the crafts professions and in the liberal professions organize their respective industries in guilds and chambers in European countries like Germany and Austria. One of the most important changes in licensing has been the 2004 reform in Germany, where workers in 53 of 94 crafts professions were not required to be licensed anymore in order to start a business. In 2020, 12 of these deregulated professions reinstated the licensing requirement.File:Title Page of the Medical Register Wellcome L0040962.jpg|right|thumb|200px|In the United Kingdom, the Medical Act 1858 established the first countrywide licensing body for doctors.
Types
In the United States and Canada, licensing is usually required by law to work in a particular profession or to obtain a privilege such as to drive a car or truck. Many other privileges and professions require a license, generally from the state or provincial government, in order to ensure that the public will not be harmed by the incompetence of the practitioners, and to limit supply to incumbent practitioners and thus increase wages.Examples of professions that require licensure in some jurisdictions include: actuary, architect, certified public accountant, electrician, engineering, general contractors, financial analyst, geologists, hedge fund manager, insurance agent, interior design, investment banker, licensed professional counselor, nurse, physical therapist, plumber, private investigator, psychologist, landscape architect, lawyer, nutritionist, physician, real estate broker, speech-language pathologist, school counselor, social worker, stockbroker, surveyor, and teacher.
Licensure is similar to professional certification, and sometimes synonymous ; however, certification is an employment qualification and not a legal requirement for practicing a profession. In many cases, an individual must complete certain steps, such as training, acquiring an academic degree in a particular area of study, and/or passing an exam, before becoming eligible to receive their license. There are various resources available to assist professionals with the completion of these steps. Professional associations are often a tremendous resource to individuals looking to obtain a special level of certification or licensure. Upon the successful attainment of a license, individuals append an acronym to their name, such as CPA or LPD and PI PE.
License renewal
In places, licensure may still be a lifelong privilege, but increasingly nowadays, it requires periodic review by peers and renewal. It is very common for license renewal to depend, at least in part, on academia. In the United Kingdom such regular upgrading of skills is often termed continuous professional development, or CPD. In many professions this is fast becoming a standard, mandatory and annual requirement. For example, in the US, educators are subject to state re-certification requirements in order to continue teaching. The No Child Left Behind Act of 2001, enacted to improve performance in US schools, has led to an intensification of license requirements for both beginning and experienced educators. In the case of UK medical practitioners, the government has recently proposed that they should all be legally required to produce formal proof, every five years, that they are upgrading their standard of practise. This tightening of the UK medical licensing system has largely been a response to public and government unease about a series of recent and well-publicised cases of alleged medical incompetence, including the Harold Shipman case, the Alder Hey organs scandal and those involving David Southall, Rodney Ledward and Richard Neale.Such cases of medical malpractice in the 1990s are widely considered to have inspired the government to tighten professional control of medical practitioners and monitor the quality of their practice for their entire working life. One qualification for life is no longer deemed sufficient. Consequently, medical licenses can now be withdrawn when evidence of serious malpractice emerges. Currently, though such reviews of CPD are entirely voluntary, some form of professional development is already strongly encouraged within the medical profession.
Economic theory
One simple theory of occupational licensing envisions a costless supply of unbiased, capable gatekeepers, and enforcers. The gatekeepers screen entrants to the occupation, barring those whose skills or character suggest a tendency toward low-quality output. The enforcers monitor incumbents and discipline those whose performance is below standard with punishments that may include revocation of the license needed to practise. Assuming that entry and performance are controlled in these ways, the quality of service in the profession will almost automatically be maintained at or above standards that are set by the gatekeeper to the profession. Within this approach, only those who have the funds to invest in training and the ability to do the work are able to enter the occupation.Introducing economics to this otherwise mechanical model by noting that a key discipline on incumbents—the threat of revoking one's license—may not mean much if incumbents can easily re-enter the profession, such as by moving to a new firm, or by shifting to an alternative occupation with little loss of income. Since grandfathering is the norm when occupations seek to become licensed, incumbent workers are usually supportive of the regulation process. In the absence of grandfathering, lower-skilled workers in the occupation may have to seek alternative employment. For example, if sales skills are the key to both providing licensed sales of heart monitors and the non-licensed selling of shoes or cars, then individuals may shift between these lines of work with little loss of income.
Under these circumstances, meaningful discipline for license holders may require deliberate steps to ensure that loss of license entails significant financial loss. Such additional steps could include the imposition of fines, improved screening to prevent expelled practitioners from re-entering the occupation, or requiring all incumbents to put up capital that would be forfeited upon loss of the license. To offset the possibility that incumbents could shift to other occupations with little loss of income, entry requirements could be tightened to limit supply and create monopoly rents within the licensed occupation. The threat of losing these monopoly rents could, in principle, give incentives to incumbents to maintain quality standards. This may also result in some increases in human capital investments in order to attain additional requirements. The rents could also motivate potential entrants to invest in high levels of training in order to gain admittance. This suggests that licensing can raise quality within an industry by restricting supply, raising labor wages, and raising output prices. Increasing prices may signal either enhanced quality due to perceived or actual skill enhancements or restrictions on the supply of regulated workers.
State-regulated occupations can use political institutions to restrict supply and raise the wages of licensed practitioners. There is assumed to be a once-and-for-all income gain that accrues to current members of the occupation who are "grandfathered" in, and do not have to meet the newly established standard. Generally, workers who are "grandfathered" are not required to ever meet the standards of the new entrants. Individuals who attempt to enter the occupation in the future will need to balance the economic rents of the field's increased monopoly power against the greater difficulty of meeting the entrance requirements.
Once an occupation is regulated, members of that occupation in a geographic or political jurisdiction can implement tougher statutes or examination pass rates and may gain relative to those who have easier requirements by further restricting the supply of labor and obtaining economic rents for incumbents. Restrictions would include raising the pass rate on licensing exams, imposing higher general and specific requirements, and implementing tougher residency requirements that limit new arrivals in the area from qualifying for a license. Moreover, individuals who have finished schooling in the occupation may decide not to go to a particular political jurisdiction where the pass rate is low because both the economic and shame costs may be high.
Conversely, efforts can be made at interstate reciprocity, so that a license or a certification earned in one federated state or province qualifies the holder to practice in any of the other states or provinces of the federation, which can lower the overall cost and burden of adequately staffing the profession in all regions. For example, high demand and low supply for nurses or for teachers, in any particular region, can be alleviated if the red tape is reduced, as long as that reduction does not truly harm competence and preparedness.
The effect of not reducing that administrative burden has been measured by a 2017 analysis that found that occupational licensing in different American states reduced between-state migration of individuals in professions with divergent licensing by 36 percent relative to members of other occupations, while workers in nationally licensed occupations showed no evidence of reduced interstate migration. A 2020 follow up study by the same authors found that "the magnitude of the effect can only account for a small part of the overall decline in seen in recent decades."