Janet Yellen has a knack for understatement. The chairman of the Federal Reserve said Friday that the recession might have “caused persistent changes in the labor market’s functioning.” That’s a polite way of telling the millions in the unemployment line to get used to it. They’ll be there a long time.
A new study blames “occupational licensing” for this sad situation. Laws and regulations keep a body from practicing a trade until it jumps through the hoops required to get a government license.
Stephen Davis, an economist at the University of Chicago, and John Haltiwanger, a professor at the University of Maryland, presented their findings at the bankers’ conference where Mrs. Yellen described the changed American economic landscape.
There’s some positive news. Technology continues to increase productivity, and the proliferation of big-box stores creates jobs. Nonetheless, the American labor market has suffered a “loss in fluidity,” meaning that anyone lucky enough to have a job had better think twice before switching to another one.
Workers are not necessarily switching jobs at the same rate as in the past because they’re happy where they are, but because they feel trapped where they are. Switching jobs can increase wages, with some studies estimating that job moves provide up to a third of early career gains. That’s a fading temptation.
Messrs. Davis and Haltiwanger say this is a long-term trend. In the 1950s, only 5 percent of jobs required state or federal blessing. Now, nearly 38 percent do so.
Acquiring a license is neither inexpensive, nor easy. It takes an average of 3 years and more than $400 in fees to get certification as an athletic trainer. Eighteen months and $150 is required for permission to cut someone’s hair. Preschool teachers can spend four years or more to learn how to instruct toddlers to drink their cocoa or preside over their nap time.
State governments are largely to blame for these laws, but the federal government has contributed spools of red tape by expanding protected classes and eroding the concept of at-will employment. Employers are terrified of firing disruptive or incompetent employees for fear they’ll be accused of a “hate” crime and taken to court by such an employee whose lawyer knows it will be less costly for the employer to settle than to go to court, even where it would almost certainly win. (The law, as Mr. Dickens reminded us, “is a ass.”)
The tax code’s favoring of employer-provided health insurance is a source of job lock. People won’t switch jobs if it means giving up a favorite health plan (which Obamacare will “solve” by canceling the health plan).
When laws meant to “protect” workers limit opportunities and reduce living standards, such laws should be dispatched to the trash can.