Licensure Affects Health-Care Costs and Earnings

Three years ago I blogged about a study of occupational licensure. (The blog appeared on a site where it has since been taken down, but I have reposted it on this site for your perusal.) The study found that in 2006, 29 percent of the national workforce was licensed by some level of government, a percentage much higher than I expected. The economists also found that licensure provides a pay boost roughly equivalent of that of union membership: about 15 percent. One reason it does this is by limiting occupational entry, thus reducing competition.

Last week I came upon a more recent study (PDF) by two labor economists--Morris M. Kleiner of the University of Minnesota and Kyoung Won Park of Case Western Reserve University--that focuses on just two licensed occupations: dentists and dental hygienists. The research caught my eye partly because of my continuing interest in the effects of licensure and partly because dental hygienists is an occupation that I frequently include in books about highly rewarding occupations, such as Best Jobs for the 21st Century. In the sixth edition, which I just finished writing, it ranks sixth among the best 400 occupations, with average annual income of $68,250, projected growth of 36.1% from 2008-2018, and 9,840 annual job openings projected. To these rewards, add the attractions that one can enter this career with only an associate degree, and it offers many opportunities for part-time work.

But another unusual fact about dental hygienists is that the occupation’s licensing standards in almost all states are set not by its own practitioners, but rather by practitioners of another occupation, dentists. Dental hygienists were created as an occupation that would help dentists by taking over certain routine tasks of patient care, especially cleaning teeth and teaching patients techniques of good preventive dental care.

As the occupation has evolved, some dental hygienists have attempted to increase their autonomy and get out from under the supervision of dentists. So far, this effort has been only partly successful. In 1988, Colorado became the first state that allowed dental hygienists to practice without the direct supervision of a dentist. As of 2007, only seven states allowed dental hygienists to be self-employed other than as independent contractors, and only three of these states allowed them to own a dental hygiene practice. These independent practitioners can do various tasks besides cleaning, such as application of sealants, fluoride treatments, or X-rays, but the particular mix of tasks varies between states. As a result of the legal restrictions in most states, only 0.1 percent of dental hygienists are self-employed, compared to 28.0 percent of dentists.

The economists who researched these two occupations found a good reason for dentists to restrict the autonomy of dental hygienists, entirely apart from the best interests of patients: It turns out that in states where dental hygienists can practice independently, their hourly earnings are approximately 10 percent higher, and those of dentists approximately 16 percent lower, than in other states. In addition, employment growth for dental hygienists is about 6 percent higher where they can practice independently, whereas for dentists it is about 26 percent lower.

One finding with implications for public policy is that allowing dental hygienists to practice independently reduces a state’s dental-care costs by 1 percent. It also broadens employment options for women, because dental hygienists are about 98 percent female, whereas dentists are about 78 percent male. Furthermore (and here I’m just speculating), it may provide additional opportunities for social mobility, because a career as a dental hygienist may appear attainable to young people who come from families that have no history of college completion and who (rightly or wrongly) rule out the goal of becoming a dentist. In other words, the independent practice of dental hygiene may provide an on-ramp to the middle class for some people.

As for dental hygienists, so for nurse practitioners: you will also find great variation in state laws regulating their ability to work independently. In some states, especially Western states with a lot of rural territory where doctors are scarce, nurse practitioners can act as primary-care providers. It would be interesting to see a similar study of how these state-to-state differences correlate with the earnings of nurse practitioners and physicians--and also the impact on health-care costs, which are currently the focus of much political discussion.

Prosaic Licenses

Note: This blog originally appeared on another site in 2008, where it has since been taken down.

In a book that I’m presently working on (Your $100,000 Career Plan: Match Your Personality to a Six-Figure Job), I classify a group of occupations under the heading “professional,” and one common characteristic I note among them (they include architects, lawyers, physicians, dentists, and veterinarians, among others) is that they are all licensed. However, it seems that licensure is not as exclusive an occupational characteristic as it once was. One recent study, “The Prevalence and Effects of Occupationhttp://www.blogger.com/img/blank.gifal Licensing,” estimates that 29 percent of the national workforce is licensed by some level of government.

That figure surprised me. Evidently the percentage is so much higher than I expected partly because past estimates have been based solely on state licensure requirements and partly because the number of licensed occupations has grown in recent years. The researchers who conducted this study in 2006, Morris M. Kleiner of the University of Minnesota and the prolific Alan B. Krueger of Princeton, based their finding on a specially designed Gallup survey asking respondents “Does your job require a license by a federal, state, or local government agency?”

It’s important to remember what a license is and is not. Some occupations, such as pet groomer, are open to anyone who wants to offer his or her services. (The results of this free market are evident in the unpredictable appearance of my neighbor’s West Highland White Terrier.) Registration is a requirement that some jurisdictions impose on workers in some other occupations. For example, to keep bees in Rhode Island, you must register with the state. This requirement probably is in place so that the state’s Department of Environmental Management knows where the beehives are and thus is able to conduct inspections for communicable diseases. Certification is usually awarded by a professional organization as recognition that the practitioner has met certain standards, such as a specified level or kind of education, a specified amount of work experience, or a passing score on a test of occupational skills, knowledge, and perhaps professional ethics. By definition, certification usually is not a legal requirement, but in many occupations it is a sign of professionalism. Licensure usually imposes entry requirements similar to those of certification, but it differs in that it is required by law.

In many foreign countries, registration means the same thing as licensure; this meaning survives in our term “registered nurses,” who actually are licensed. In some foreign countries where all professional workers are educated at state-run universities, there is no distinction between licensure and certification in these occupations because professional status is awarded by the universities.

So what is the benefit of licensure that has caused it to become so widespread? Occupational licensure began as a way to ensure the competence of workers who make life-and-death decisions—for example, doctors. For many years, it has been extended to other occupations that might have great impact on people’s lives and well-being, such as structural engineers and lawyers. But the function of licensure has slowly changed, largely because of the nature of the people who control it. Licensure is enforced by government, but inevitably the people who set the standards of professionalism, who specify the contents of the licensing exam, and who determine the wording of the code of ethics are the practitioners. And, for the most part, these are the same people who have encouraged licensure in fields where previously it did not exist. In most fields, practitioners have a vested interest in minimizing competition, so licensure benefits them—but not necessarily the public—by creating a barrier to occupational entry. Kleiner and Krueger found that licensure provides a pay boost roughly equivalent of that of union membership: about 15 percent.

In Maine, for example, you need a license to dig for marine worms. The state imposed this license not because careless worm-digging could endanger anyone’s life, but rather to protect Maine’s worm-diggers from having to share their beaches with out-of-state diggers.

I’m not a market fundamentalist, and recent events in the financial sector have underscored the important role government needs to play in the economy. I wouldn’t want to be operated on by a doctor who lacked a physician’s license. However, I’m not sure that the expansion of licensure is always a good thing.