Commentary: Sting operation calls enforcement of occupational licensing into question

Handyman tool belt on workshop

This commentary reflects the views of Morris Kleiner, an Upjohn Institute visiting scholar and researcher on occupational licensing.

Recently 118 people in Florida were arrested for performing unlicensed contracting work as part of a Hillsborough County Sheriff's Office sting known as "Operation House Hunters." The sheriff's deputies posed as homeowners seeking handymen for jobs that required licenses from the government. The workers were assigned to one of five homes, where undercover deputies filmed them performing or agreeing to perform tasks requiring licenses, such as painting or installing recessed lighting. Using these approaches to catch unlicensed workers is not unique to Florida; similar tactics have been used in New York and California.

Does the threat posed by unlicensed workers warrant these extraordinary efforts? Research at the Upjohn Institute for Employment Research and other sources indicates that such policies are not an efficient use of state resources. For example, a recent National Bureau of Economic Research working paper by Chiara Farronato, Andrey Fradkin, Bradley Larsen, and Erik Brynjolfsson shows that more stringent licensing regulations in residential home services are associated with less competition and higher prices but not with any improvement in customer satisfaction, as measured by review ratings or the propensity to use the platform again. The researchers find that the benefits of licensing in terms of service quality are minimal, and that stringent licensing results in less competition and higher prices.     

The results in construction also are consistent with my work on the licensing of Uber drivers. Occupational regulations typically are justified as ensuring a minimum level of safety and quality. We use riders’ satisfaction ratings, as well as telematics data (fraction of hard brakes and hard accelerations), to compare safety and quality outcomes of trips by drivers with and without an occupational license in overlapping markets. Like the findings in construction, our results indicate that occupational licensing often does not improve safety and quality outcomes. Even when there is a positive effect of occupational licensing, the effect is relatively small.

Occupational licensing has other effects, however. It makes it difficult for workers to enter an occupation, which greatly limits the supply of providers. To the extent that customers believe that licensed workers provide higher-quality services, licensing can also increase demand for these services. Both effects can lead to higher prices.

The influence of occupational licensing on labor markets is large and growing—the proportion of the workforce affected by licensure laws has grown from 5 percent in the 1950s to about one quarter of the workforce today. Occupational licensing now affects more workers than does the minimum wage or unions.

This trend should interest policymakers considering whether licensing laws serve as unnecessary impediments for people seeking work. The case of the Florida handymen calls into question whether the enforcement of licensing regulations serves the public interest in all cases.

Morris M. Kleiner is a professor at the Humphrey School and the AFL-CIO Chair in Labor Policy at the University of Minnesota and a visiting scholar at the Upjohn Institute. Kleiner’s research interests focus on the analysis of institutions, such as government, business and labor organizations, in the labor market. A renowned authority on the effects of occupational licensing on labor markets, Kleiner is the author of three books on the subject:

Date: February 12, 2020
Categories: Commentary