The Labor Market Consequences of Regulating Similar Occupations: the Licensing of Occupational and Physical Therapists
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The Labor Market Consequences of Regulating Similar Occupations: the Licensing of Occupational and Physical Therapists Jing Cai 1 & Morris M. Kleiner 2 Accepted: 4 November 2020/ # Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract This study examines the influence of occupational licensing on two significant occupations that provide similar health care services: occupational therapists and physical therapists. Since many of the tasks that these occupations overlap, individuals in both occupations can have legal jurisdiction over these tasks. We examine how these two occupations interact with one another in the labor market on wage determination and employment. Unlike previous analyses of occupational licensing, our study evaluates two professions that are female dominated both within the vocations, and among its leadership. Our results show that the ability of physical therapists to have direct access to patients is associated with a reduction in hourly earnings for occupational therapists, suggesting there is substitution for certain overlapping service tasks across the two occupations. The ability of these two occupations to be mainly substitutes for one another provides new evidence on how the growing numbers of regulated occupations that provide similar tasks influence one another. Keywords Occupational licensing . Wage and employment determination . Interaction of
occupations JEL Classification J44 . J31 . J38 . J88
Introduction In models of competitive labor markets, workers with overlapping skills are assumed to compete for work. With the introduction of occupational licensing, regulations may
* Morris M. Kleiner [email protected]
1
W.E. Upjohn Institute for Employment Research, Kalamazoo, MI, USA
2
Federal Reserve Bank of Minneapolis, W.E. Upjohn Institute for Employment Research, and the NBER, University of Minnesota, Minneapolis, MN, USA
Journal of Labor Research
function as a barrier to entry that may distort wages and employment in licensed occupation and increases the prices of products and services that are produced by licensed workers (Friedman and Kuznets 1945; Friedman 1962; Kleiner and Krueger 2013). In contrast, the benefits of these regulations may reduce allocative inefficiencies created by information asymmetries in some in service and labor markets (Arrow 1963; Leland 1979; Shapiro 1986). The governmental regulation of occupations has been among the fastest-growing labor market institutions in the U.S. economy. Recent estimates show that the proportion of all American workers covered by occupational regulations increased from about 5% in the 1970s to 22% in 2015 (Cunningham 2019). To illustrate the growth, during the 2020 legislative sessions, several new occupations were licensed in at least one state—ranging from music therapists in Virginia to the licensing of estheticians in Connecticut.1 We analyze the effects of occupational regulations in the health sector by focusing on the practice restrictions faced by two occupations physical therapists (PT) and o
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