Prosaic Licenses

Note: This blog originally appeared on another site in 2008, where it has since been taken down.

In a book that I’m presently working on (Your $100,000 Career Plan: Match Your Personality to a Six-Figure Job), I classify a group of occupations under the heading “professional,” and one common characteristic I note among them (they include architects, lawyers, physicians, dentists, and veterinarians, among others) is that they are all licensed. However, it seems that licensure is not as exclusive an occupational characteristic as it once was. One recent study, “The Prevalence and Effects of Occupationhttp://www.blogger.com/img/blank.gifal Licensing,” estimates that 29 percent of the national workforce is licensed by some level of government.

That figure surprised me. Evidently the percentage is so much higher than I expected partly because past estimates have been based solely on state licensure requirements and partly because the number of licensed occupations has grown in recent years. The researchers who conducted this study in 2006, Morris M. Kleiner of the University of Minnesota and the prolific Alan B. Krueger of Princeton, based their finding on a specially designed Gallup survey asking respondents “Does your job require a license by a federal, state, or local government agency?”

It’s important to remember what a license is and is not. Some occupations, such as pet groomer, are open to anyone who wants to offer his or her services. (The results of this free market are evident in the unpredictable appearance of my neighbor’s West Highland White Terrier.) Registration is a requirement that some jurisdictions impose on workers in some other occupations. For example, to keep bees in Rhode Island, you must register with the state. This requirement probably is in place so that the state’s Department of Environmental Management knows where the beehives are and thus is able to conduct inspections for communicable diseases. Certification is usually awarded by a professional organization as recognition that the practitioner has met certain standards, such as a specified level or kind of education, a specified amount of work experience, or a passing score on a test of occupational skills, knowledge, and perhaps professional ethics. By definition, certification usually is not a legal requirement, but in many occupations it is a sign of professionalism. Licensure usually imposes entry requirements similar to those of certification, but it differs in that it is required by law.

In many foreign countries, registration means the same thing as licensure; this meaning survives in our term “registered nurses,” who actually are licensed. In some foreign countries where all professional workers are educated at state-run universities, there is no distinction between licensure and certification in these occupations because professional status is awarded by the universities.

So what is the benefit of licensure that has caused it to become so widespread? Occupational licensure began as a way to ensure the competence of workers who make life-and-death decisions—for example, doctors. For many years, it has been extended to other occupations that might have great impact on people’s lives and well-being, such as structural engineers and lawyers. But the function of licensure has slowly changed, largely because of the nature of the people who control it. Licensure is enforced by government, but inevitably the people who set the standards of professionalism, who specify the contents of the licensing exam, and who determine the wording of the code of ethics are the practitioners. And, for the most part, these are the same people who have encouraged licensure in fields where previously it did not exist. In most fields, practitioners have a vested interest in minimizing competition, so licensure benefits them—but not necessarily the public—by creating a barrier to occupational entry. Kleiner and Krueger found that licensure provides a pay boost roughly equivalent of that of union membership: about 15 percent.

In Maine, for example, you need a license to dig for marine worms. The state imposed this license not because careless worm-digging could endanger anyone’s life, but rather to protect Maine’s worm-diggers from having to share their beaches with out-of-state diggers.

I’m not a market fundamentalist, and recent events in the financial sector have underscored the important role government needs to play in the economy. I wouldn’t want to be operated on by a doctor who lacked a physician’s license. However, I’m not sure that the expansion of licensure is always a good thing.

A Graphic Look at Secure and Insecure Industries

Right now I’m working on a book called 150 Best Jobs for a Secure Future, which is intended to take the place of 150 Best Recession-Proof Jobs. I received a lot of media coverage, including face time on several TV networks, when Recession-Proof came out, thanks to the efforts of JIST’s crackerjack publicist, Selena Dehne, and also because the book came out just as the recession was taking its heaviest toll and the subject of the book thus had newsworthiness.

Now that I’m working on a similar concept, I’m trying to benefit from hindsight. Did all 150 occupations included in the book weather the recession with no layoffs? Of course not. In fact, almost every occupation you can think of has a certain number of layoffs and dismissals, even in good times. Think of layoffs as like body temperature: There’s a certain rate, like our normal 98.6 degrees, that can be considered healthy. A better question to ask is whether some of the occupations in the earlier book experienced a considerable uptick in layoffs, a feverish recessionary level. Sadly, some did, but that’s not surprising. The Great Recession was ever so much worse than any we have experienced since the 1930s, and some occupations that are barely affected by normal recessions did experience a higher level of job loss.

One lesson that I learned from the previous book is that in considerations of job security, it is helpful to think not only in terms of occupations but also in terms of industries. Some industries are much less sensitive to the ups and downs of the economy than others. That’s something I stated in the earlier book, but this time I’m constructing the lists of best jobs based on industry-specific data for occupations. So, for example, a given occupation may appear as tenth on the list of best jobs in educational services but as twenty-second (or maybe not at all) on the list of best jobs in government.

I’ve used several lines of research for selecting the most secure industries, but perhaps the most dramatic is the graphic that appears below. (This ties in nicely with my blog of two weeks ago, in which I discussed the importance of graphicacy--skill with using and understanding visual representations.)

Layoff and Discharge Rates (Percent) in Selected Industries

Source: JOLTS database, BLS

I created this graph from data I downloaded from the Department of Labor’s Job Openings and Labor Turnover Survey (JOLTS). It shows the average annual percentage rate of layoffs and discharges in several major industries over the previous decade. The first thing you should notice is the bold black line, which represents all private-sector industries. You’ll note that over the course of the last decade, it starts out flat (at around 1.7%), coasts down along a very slight mid-decade dip, trends upward beginning in 2007, hits a peak in 2009, and then slopes downward, reaching about the lowest point of the previous decade. The impact of the Great Recession is obvious, and this is the line against which you should compare the other lines in the chart.

Now let’s focus on the lowest and flattest lines on the chart. The star performer here is the bold robin’s-egg blue line that represents education and health care, which maintains a steady rate of between 8.0% and 9.0% over the course of the decade. You can barely see the recessionary uptick that appears along almost all the other lines. You can be sure I’m going to include this industry (actually, the two smaller industries it subsumes) in the book I’m working on now.

Government, the pink line, is another interesting industry to observe. It begins the decade with the lowest rate of all, 0.5%, and maintains the lowest rate until the very end of the decade. Note that it actually slopes downwards slightly from 2007 to 2008, when almost every other industry is beginning to see increased layoffs. It parallels the other industries in sloping upward after 2008, but it is unique in that it continues this upward slope even after the private-sector industries start seeing diminished layoffs. It’s not hard to understand why you’re seeing increasing government layoffs here: reduced tax revenues and politicians who have experienced an overnight conversion to deficit hawkishness. Nevertheless, I’m going to include government as one of the industries in the new book, because there are several kinds of government workers (such as in law enforcement) that are essential and will not be dismissed unless we are prepared to model our country after Somalia.

Note also the green line that partially overlaps with the robins’-egg blue education and health care line. This is finance and insurance. You’ll observe that it’s a little more volatile than education and health care, but it still shows fewer perturbations than most of the other industries and overall maintains one of the lowest rates of layoffs and discharges.

The most sensitive industry on this chart, with the widest swings and a very high layoff rate to begin with, is construction, the red line. But the one that particularly fascinates me is the yellow line for arts, entertainment, and recreation, which keeps changing places with construction as the industry with the highest layoff rate. This industry is the most countercyclical of all those shown here, actually doing better as the recession sets in. I’m not going to include either of these two industries in the book.