Wednesday 22 April 2020

Removing rigidities

Coming out of the mess will be easier where labour markets are less rigid. People will need to be able to shift to the areas seeing increased demand - both geographically and by industry sector. 

At least in the US, occupational licensing regulation makes that hard. If you're certified by one state's board, you may not be recognised by the next state over.

Much of that licensing was never really necessary. But it's even less necessary where there are better feedback mechanisms providing information about service quality.

Sara Brown summarises work from Brynjolfsson and coauthors: (HT: R.S.)
More than 1,100 occupations, from interior designers to contractors, require licenses in at least one U.S. state. But consumers care more about online reviews and prices than license status when it comes to choosing a service provider, according to new research from MIT Sloan professorErik Brynjolfsson and his co-authors.

As consumers increasingly go online to hire service providers, the researchers found that more stringent licensing regulations result in less competition and higher prices but do not boost customer satisfaction, at least when it comes to home improvement services. This suggests well-functioning online measures, like ratings and reviews, could be an effective substitute for professional licenses as a form of quality control.

Brynjolfsson and his fellow researchers — Harvard University professor Chiara Farronato, Stanford University professor Bradley Larsen, PhD ’13, and Boston University professor Andrey Fradkin— studied a large online labor market and conducted a nationwide survey. Their working paper, “Consumer Protection in an Online World: An Analysis of Occupational Licensing,” was published in January.
Read the whole thing of course.

And recall that NZ is hardly immune to occupational certification requirements that could make our own recovery harder. 

Here's Simon Greenwood & Andrea Menclova, from 2018 (ungated):
This study is the first to our knowledge to document the extent and correlates of occupational regulation in New Zealand. Using data from the Census and the Survey of Working Life, we estimate that 28% of workers’ primary jobs are affected by occupational regulation. This is lower than the 35% reported for the US but identical to UK estimates of 28%. Furthermore, we find that holding observable factors constant, occupational regulation is associated with a wage premium of 5%. This is lower than the 18% licensing premium found for the US but within the range of estimates for the UK.
Note that they find that while 22% of females work in regulated professions, 34% of men do.

Where more women than men will lose their jobs in the current mess due to their representation in service industries more heavily affected, it will be harder for them to shift into areas where entry is restricted. 

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