Adjusting to Another Board: An Analysis of Competitive Occupational Licensure

• In Event: Occupational Licensing: Barriers, Competition, and Equity in the Modern Labor Market

Abstract

Occupational licensing is a major U.S. labor market institution, but we lack a clear model of how licensing boards interact, compete, and set policy. While policy debates often focus on the scope of practice allowed under licenses, we have little understanding of how two licensed professions compete when their scopes overlap, as they frequently do. I develop a simple model in which similar professions compete for labor supply and prestige, and apply it to early 20th-century licensing conflicts between chiropractors and allopaths. Licensing boards help solve a “market-for-lemons” problem but can also act as cartels. Allowing overlapping occupations to have independent boards can mitigate both issues.

Using complete-count census data, I show that the introduction of a chiropractic licensing board increased the prevalence, earnings, education, and home values of chiropractors, consistent with higher practitioner quality. These gains are reversed in states that adopt “basic science boards,” which restrict the standards chiropractic boards can set. Digitized records from the Journal of the American Medical Association show that medical boards raised their standards in response to chiropractic competition, explaining the decline in allopath prevalence. I formalize this dynamic with a duopoly model and show that its equilibria align with observed census outcomes.

Author

• John Fallon, Boston University
  Presenting Author