Peter Q. Blair is the youngest of seven sons and “began to understand markets while selling fruits and vegetables in the Bahamas at the Nassau Straw Market with his brothers,” according to the Graduate School of Education website. from Harvard, where he is an assistant professor. He studied math and physics at Duke and Harvard before returning to the markets, earning a doctorate in applied economics from the Wharton School at the University of Pennsylvania.
As a black man, Blair brings a particular perspective about professional licensing, which raises barriers to entry into professions that, in some cases, disproportionately affect racial minorities. A classic example is licensing requirements for African style hair braiding. Braiding doesn’t involve harsh chemicals or sharp objects, so even if it’s done poorly, no one gets hurt. Yet in the early 1990s, 36 states required hair braiders to be licensed as cosmetologists, even if they weren’t doing cosmetology. All but four states have since repealed the requirement.
Blair explains in a recent article for The Reporter, a publication of the National Bureau of Economic Research, that he was drawn to the study of professional licenses because they cover almost a quarter of the American workforce. Another attraction was the availability of new sources of data from government surveys, administrative records and a large online marketplace, Angi, formerly known as Angie’s List.
Blair did some of his research with Bobby Chung, a labor economist at St. Bonaventure University in St. Bonaventure, NY. The two found that “when an occupation is licensed, the relative share of workers in the occupation declines by 27%, which is a big impact,” Blair wrote in The Reporter.
To find out if those remaining in the profession are picking up the slack by working harder, Blair worked with Mischa Fisher, Angi’s chief economist, to sift through 21 million transactions on Angi. They focused on labor markets divided by a state border, with licenses required in one state but not the other. They looked at what is called the acceptance rate. In an acceptance, at least one service professional is willing to purchase a lead based on customer-initiated research on a site like Angi. When the acceptance rate is low, it means job opportunities are left on the table; too many service professionals are abandoning the market. Blair and Fisher found, he wrote, that “licensing a task reduces the acceptance rate by 16 percentage points from a baseline of about 60 percent.”
Other research found that “licensing does not materially change the quality of service, as measured by customer ratings or the price paid for work,” Blair wrote. Which means that licensing generates a lot of pain for sellers in exchange for little gain for buyers.
Dick M. Carpenter II, senior director of strategic research at the Institute for Justice, which is pushing for relaxed licensing requirements, told me that despite victories such as Idaho’s over braiding, the licensing tide continues to rise slowly. He argues that in many professions licensing could be replaced by less restrictive means of consumer protection.
“Some alternatives, like consumer review websites and private certification, harness the power of reputation to compel companies to maintain high service quality,” the Institute for Justice wrote in a 2017 report. Other alternatives include requirements that sellers post a bond or carry insurance or submit to registration or certification. Case in point: Restaurant cooks don’t need to be licensed; instead, inspectors verify that kitchens meet health and safety standards.
There are cases where licenses are the right answer, of course. You wouldn’t want to rely solely on Yelp reviews to weed out incompetent X-ray techs, pilots, or surgeons. Even in cosmetology, it must be argued that people working with chemicals on the skin should be allowed. (Although – without bragging here – I didn’t get a license until I dyed my wife’s hair at the start of the Covid pandemic. “Chez Pierre.”) Erin Walter, director of marketing at the Professional Beauty Association , a trade group in Scottsdale, Arizona, told me that hair dryers need to be trained to watch for head lice so they don’t pass it from one customer to another.
Blair and Chung also studied how licensing affects different racial groups. While licensing works against the interests of black professionals in the case of hair braiding, it could help at least some of them in other professions, Blair and Chung theorized. For example, some professions will not license people with crimes on their record, and black men are more likely to have been convicted of crimes than white men. So for a black man, having a license can be a way to demonstrate that he has not committed any crimes in his past, even in states that do not allow employers to ask about criminal records, have theorized Blair and Chung.
When they tested the theory against the data, they found that it held up. Black men and women got a bigger increase in income from the license than white men and women.
I asked Blair what he thought of the find. “We’re not saying these licensing restrictions are good,” he said. “We say they are informative.” When hirers can’t tell if someone has a criminal past, they can “trust race even more as a proxy” and therefore discriminate against all black people, Blair said. “The labor market values information, and when you take information away, it works less efficiently,” he said. “The most fundamental solution is to correct what contributes to the disparity in arrest records between white men and black men.”
Instead of the usual email from a reader, here are excerpts from several emails and Twitter comments about my Wednesday newsletter: “Ordinary people don’t think like economists. It is a problem.”
“The problem is that the public is right and the economists are not.”
“The top 100 economists in the world meet every year in Jackson Hole, Wyo., and proceed, with great fanfare and circumstance, to prove they have no idea what’s going on.”
“Some economists allow their politics to influence or supersede their knowledge of economics, and sometimes even border on dishonesty.”
“Maybe the public needs to fire policymakers who hate it and hire better ones.”
“Economists are the court astrologers of the modern age.”
Ouch. I wrote in my first newsletter last summer that I admire economists and hope to convey my enthusiasm for what they do. It seems that the profession has a lot to do to build its reputation.
quote of the day
“The ability to transform itself from within makes capitalism a somewhat peculiar beast — a chameleon, it perpetually changes color; similar to a snake, it periodically sheds its skin.
– David Harvey, “The Limits of Capital” (1982)
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