Occupational Licensing Raises Costs for Consumers and Reduces Jobs

(p. B1) What lesson should we draw from the success of Uber?
Customers have flocked to its service. In the final three months of last year, its so-called driver-partners made $656.8 million, according to an analysis of Uber data released last week by the Princeton economist Alan B. Krueger, who served as President Obama’s chief economic adviser during his first term, and Uber’s Jonathan V. Hall.
Drivers like it, too. By the end of last year, the service had grown to over 160,000 active drivers offering at least four drives a month, from near zero in mid-2012. And the analysis by Mr. Krueger and Mr. Hall suggests they make at least as much as regular taxi drivers and chauffeurs, on flexible hours. Often, they make more.
This kind of exponential growth confirms what every New Yorker and cab riders in many other cities have long suspected: Taxi service is woefully inefficient. It also raises a question of broader relevance: Why stop here?
. . .
(p. B5) . . . like taxi medallions, state licenses required to practice all sorts of jobs often serve merely to cordon off occupations for the benefit of licensed workers and their lobbying groups, protecting them from legitimate competition.
This comes at a substantial social cost. “Lower-income people suffer from licensing,” Professor Krueger told me. “It raises the costs of many services and prevents low-income people from getting into some professions.”
In a study commissioned by the Brookings Institution’s Hamilton Project, Morris Kleiner of the University of Minnesota found that almost three out of 10 workers in the United States need a license from state governments to do their jobs, up from one in 20 in the 1950s. By cordoning off so many occupations, he estimates, professional licensing by state governments ultimately reduces employment by up to 2.8 million jobs.

For the full commentary, see:
Eduardo Porter. “Job Licenses in Spotlight as Uber Rises.” The New York Times (Weds., JAN. 28, 2015): B1 & B5.
(Note: ellipses added.)
(Note: the online version of the commentary has the date JAN. 27, 2015.)

The working paper co-authored by Krueger, is:
Hall, Jonathan V., and Alan B. Krueger. “An Analysis of the Labor Market for Uber’s Driver-Partners in the United States.” Working paper. January 22, 2015.

Kleiner’s working paper at Brookings, is:
Kleiner, Morris M. “Reforming Occupational Licensing Policies.” In The Hamilton Project, Brookings, Discussion Paper 2015-01, January 2015.

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