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New research suggests that occupational licences for social services and nursing home staff do not increase the quality of service

I’ve written before about the negative economic effects of occupational licenses. For all the rhetoric, they are about protecting producers, not consumersthey lower labor supply and slow economic growth; and, while our state’s regime might not be as onerous as in many other states at present, Minnesota ranked 11th overall for the increase in the breadth and burden of its occupational licensing requirements between 2012 and 2017.

While there is a a growing consensus suggesting that, by restricting supply, licensing increases prices and the wages of licensed workers substantially, there is less clarity on the impact of occupational licensing on the quality of the service provided. A new paper by economists John R. Bowblis and Austin C. Smith explores that question. 

Bowblis and Smith focus on the staffing of social services departments in skilled nursing facilities (SNFs), more commonly referred to as nursing homes to estimate the impact of occupational licensing on quality of service. Paraprofessionals (unlicensed social services staff) and qualified social workers provide the same services in social services departments, but a staffing provision
of the Omnibus Budget Reconciliation Act of 1987 requires all SNFs with 121 or more beds to staff at least one full-time equivalent qualified social worker (QSW). QSWs must be licensed to practice in the state in which the facility is located, or if the state does not have its own licensing requirements, the federal government requires QSWs to meet educational and experience requirements similar to state licensing requirements.

Bowblis and Smith find that QSW staffing is approximately 10 percent higher for SNFs just above the 121-bed threshold relative to those just below. The overall increase in social services staffing is negligible, though, because SNFs tend to meet this requirement in the least costly way—substituting QSWs for unlicensed paraprofessionals. The regulation effectively increases the licensure level of the marginal social services employee. This creates a natural experiment whereby SNFs just above the threshold are induced to use a significantly higher share of QSWs than are the slightly smaller facilities. Bowblis and Smith use this variation in workforce composition to estimate the impact of increased licensure on service quality.

They find no evidence that the increase in licensure significantly improves overall facility quality, quality of life, or the provision of social services as measured by deficiency scores. Of course, it could be s different story in other of the 1,100 occupations that range from lawyers to funeral attendants are licensed in at least one state. Research has found that increased stringency in the
licensing of dentists and mortgage brokers does not lead to improved outcomes for patients and customers. By contrast, other research has found that requiring midwives to be licensed in the early 1900s reduced maternal mortality substantially and reduced mortality of young children from diarrhea.

In short, some occupational licenses can be justified in terms of improved outcomes, but many others cannot. The trick is to tell which is which and design an appropriate regime where licenses really are appropriate.

John Phelan is an economist at the Center of the American Experiment. 

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