2 / Regulation / Summer 2016

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Should RestaurantTipping Be Abolished?✒ By RichaRd B. McKenzie

Labor advocates are seeking to abolish restaurant tipping, evenat fast-casual restaurants such as Applebee’s, Olive Garden, andTGI Friday’s. Tipping is supposedly a repugnant practice because

it dehumanizes servers who “must grovel for our change” to maketheir living. It also supposedly perpetuates poverty among servers,“enshrines” racial and gender discrimina-tion, and encourages sexual harassment.moreover, tipping does not improve cus-tomer service, or so the abolitionists say.

Tipping abolitionists seek to replacetipping with a “living wage” of maybe$15 or $18. They think servers would beecstatic with the change in their compensa-tion from tip-dependent income that theabolitionists consider low and variable, tonon-tip-dependent income that the abo-litionists believe would be consistentlyhigher. Yet my research indicates the casefor the universal abolition of tipping ismisguided on both factual and theoreticalgrounds, at least for fast-casual restaurantswith table service—a sector that especiallyconcerns tipping abolitionists.

Better income? / I investigated the eco-nomics of tipping last fall by surveying 40servers in fast-casual restaurants in OrangeCounty, CA. (To be included in the survey,restaurants had to offer on their menusa cheeseburger-fries combination pricedbetween $8 and $12, and beer and wine.)When asked, most servers had a fairly firmidea of their tip income. Some consulted asmartphone app on which they recordedtheir daily tips and computed their averagehourly total income, which they gave me.

I posed a question to each privately,“What hourly wage would cause you tovoluntarily give up your current com-

pensation package, including the state’sminimum wage and your tip income?”The responses ranged from $18 to $50 anhour. The median no-tipped wage was $30an hour. Some 62 percent of the serversdemanded an hourly wage of at least $30 toreplace their current compensation. To putthat in perspective, if two married serverswork full-time and earn $30 an hour, theywould have an annual household incomeof $124,800, putting them in the top 17percent of households by income (and yetthey would still be entitled to the Califor-nia minimum wage, which supposedlytargets only low-income workers).

This response is apparently not uniqueto Orange County. In the spring of 2016,I similarly interviewed 10 servers in pied-mont North Carolina. They had a median

response of $26 an hour, which is actu-ally higher than the median hourly wagedemanded in Orange County after adjust-ing for the difference in the cost of living.

Tipping abolitionists might be sur-prised to learn that all servers surveyedchortled at the suggested replacement oftheir tip incomes with a “living wage” of$15 an hour. most servers responded withcomments of the essence, “How stupid canthese people be?”

Better service? / Studies on the effect oftipping on service, and vice versa, suggesta positive but very weak tie between tip-ping and service quality. However, thesestudies are replete with problems, not theleast of which is that one prominent studyused “subjects” who were community col-lege students. The students were askedto assess the “quality” of their restaurantservice (on a scale of 1 to 5) over someundefined period of time as the studentsate at different restaurants at differenttimes of the day. The students were askedto self-report their tips and service qual-ity, which means their subjective assess-ments of service quality could vary widelyacross students and through time. Theresearchers found that servers’ tip incomerose only 2 percent for a 1-point increasein reported service quality on the 5-pointscale—hardly a reliable finding.

R ichaRd B. McKenzie is the Walter B. GerkenProfessor emeritus in the Merage Business School atthe University of california, irvine and a senior fellowat the national center for Policy analysis (ncPa). Thiscommentary is drawn from an ncPa policy paper. p

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SaM BaTKinS is director of regulatory policy at theamerican action Forum.

iKe BR annon is a visiting fellow at the cato instituteand president of capital Policy analytics.

To examine this issue, I asked the serversI interviewed if the service they providedaffected their tips. All strongly agreed it did.Indeed, servers said that if they raised theirservice level from a “3” (average service) toa “4” (above-average), their average tip per-centage (not total tips) would rise by over25 percent. If they elevated their servicefrom “4” to “5” (excellent service), theiraverage percentage tip would rise another25 percent, which means that an increase inservice level from average to excellent wouldraise their average percentage tips by 57 per-cent. All servers strongly agreed that overallservice quality would drop precipitously iftheir tip income were replaced with a fixedhourly wage, especially for “loud,” “obnox-ious,” and “arrogant” customers, as well ascustomers with unruly and messy children.

Particular knowledge / Tipping abolitionistsportray tipping as a loss to everyone: servers,owners, and customers. They don’t under-stand that an array of restaurants face a seri-ous management problem that economistscall the “principal/agent problem.” manag-ers and owners may know much about therestaurant business, but they don’t knowall that their servers know about particu-lar customers, especially “regulars”—suchas their names, what they typically order,and how they want to be treated (whetherthey want to talk or be left alone). many cus-tomers want some control over the servicethey receive, and tips give them that control.Servers want to be rewarded for their extraeffort. Owners want servers to use their localknowledge to increase sales and repeat visits.One way of doing this is to make servers defacto commissioned salespeople, makingsure that servers are partial residual claim-ants on the added service they provide andthe resulting additional sales and profits therestaurants garner.

Granted, several restaurant chains arecurrently experimenting with no-tippingpolicies,combiningthemwithhigherworkerwages and menu prices. While such policychanges may work for some restaurants infast-food markets (whose products are stan-dardized and whose workers can be easilymonitored by managers), they are likely to

Summer 2016 / Regulation / 3

Would Expanded FamilyLeave Hurt Workers?✒ By SaM BaTKinS and iKe BRannon

Agood many politicians have elevated the need to reduce incomeinequality as the paramount purpose of economic policy in theimmediate future. There are many ways to pursue such a goal,

of course, but the easiest and most popular—at least of late—is to sim-ply reduce the income of the wealthy. Such a maneuver usually doesn’timprove anyone’s well-being beyond gov-ernment employees and contractors, butit is a way for the government to demon-strate its dedication to The Cause.

Another method that supposedlywould reduce inequality—and one that isbecoming au courant—is to provide paidfamily medical leave to new parents, adultoffspring of infirm parents, or couplesdealing with other medical or family crises.

It is a “socially responsible” benefit andbecause it is already done in europe, thethinking goes, it ought to be done here.

The problem is that creating a new,expensive entitlement, at least in thisinstance, is not necessarily a useful or pro-ductive way for government to demon-strate its obeisance to the family. mandat-ing paid family leave will result in sharplyhigher employment costs, and the marketwill ultimately respond by either reducingemployment, wages, or some combinationthereof, whether government finances thebenefit or it comes via a government man-

be counterproductive for many other restau-rants in fast-casual and fine-dining marketsegments (where service must, to one degreeor another, be tailored for customers’ needs).

In 2015, the owners of two pricey SanFrancisco restaurants, Bar Agricole andTrou Normand, instituted a 10-month trialof a no-tipping policy, higher base wage,and higher menu prices to finance the newwage. The restaurants returned to tippingin 2016 because server morale crashed andturnover skyrocketed to 70 percent duringthe trial period. Why? The company hadlowered servers’ de facto hourly wage froma range of $35–$45 to $20–$35.

Likewise, national fast-casual seafoodchain Joe’s Crab Shack tried a no-tippingpolicy with higher prices at a handful ofits locations in late 2015, but returned totipping in spring 2016. management gavetwo reasons for the return: they wouldhave to raise worker wages—and thus menuprices—far higher than they had expectedin order to satisfy workers’ demand for a

no-tip wage, and they found their custom-ers wanted the return of tipping.

Nevertheless, no-tipping policies couldspread in the near future as more statesand localities increase their mandatedminimum benefits and hourly wages(now scheduled to go to $15 an hour inCalifornia and New York) and remove“tipped wage” exemptions. many restau-rant executives will begin to see server tipsas a revenue stream they can tap to offsetsome of their higher mandated labor costincreases, implementing no-tipping poli-cies in exchange for menu price increases.

Tipping abolitionists may be surprisedto find that some of the most ardent oppo-nents of tipping abolition are servers andtheir customers. One North Carolina servervolunteered: “I made $60,000 in tips lastyear, reported $40,000—and had a before-tax income of $80,000! That’s why I quitmy teaching job.” And customers will likelysuffer impaired service as the tipping incen-tive disappears. R

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date. If not done correctly, it could alsocreate perverse incentives that might harmthose most likely to use such benefits.

D.C.’s experiment / much like the statesand localities that have dramaticallyboosted their minimum wage to huzzahsfrom the progressive crowd, Washington,D.C. has blazed its own path in its questto implement family leave. To its credit,the city council realized that mandatingthat all businesses provide six months ofpaid leave to new parents would providea hardy incentive for businesses to avoidhiring women of childbearing age, progres-sive or not. They came up with a fundingmethod that would avoid that hazard:impose a 1% profits tax on all businessesin the city, regardless of the number of theiremployees who availed themselves of thebenefit, and use the revenue to subsidizeon-leave employees’ income. This way thecost would be socialized across all profit-able businesses, with the government writ-ing the check.

The problem that quickly surfaced wasthat a mere 1% tax didn’t go nearly farenough in funding the desired six monthsof benefits. To provide workers with thatmuch leave at something approachingtheir pre-leave wages, the tax would haveto be north of 3%. At that rate, the city’snormally somnolent Chamber of Com-merce was roused to action and prodded itsmembers to stand together in oppositionto the tax, which was sufficient to forcethe District government to retreat to “PlanB.” They reduced the scope of the benefit,kept the tax at 1%, and distracted the angryadvocates of the benefit with talk of a $15minimum wage being next on the agenda.

Those are some of the costs, but surelythe benefits of paid leave justify the burdens,right? A family medical leave law would passa cost-benefit analysis? Probably not.

Costs / many governments across theglobe have determined that the benefits ofpaid family leave are worth the significantregulatory and fiscal costs they impose,but that begs the question: What wouldmore generous family leave practices cost

the united States? Data from the Orga-nization for economic Co-operation andDevelopment detail how much indus-trialized nations spend on family leavepolicies. Those data allow us to roughlyestimate the cost of the united Statesadopting mandatory paid leave.

For this empirical comparison, welooked at the per-country spending as aproportion of GDP in three different cat-egories: paternity leave, sick leave, and fam-ily medical leave. The united States spendsroughly 0.7% of gross domestic product(GDP) on family support, a broad cate-gory that includes paternity and maternityleave. That percentage is far smaller thanwhat other developed countries spend onthis category. Sweden spends fully 3.6% ofits GDP on family leave, more than fivetimes the u.S. ratio. Denmark’s spendingexceeds 4%, while the Scandinavian averageis 3.3%. To put that in perspective, defensespending is less than 1.3% of GDP for theScandinavian countries, 40% of what itallocates to family leave. The OeCD aver-age expenditure for family support is 2.2%.

While the united States may be a laggardwhen it comes to family leave, it spends abit more on sick leave policies, a categorythat includes disability pensions, paid sickleave, and other incapacity-related benefits.Such spending comprises roughly 1.4% ofGDP, which amounts to $260 billion a year.That is still well below the OeCD averageof 1.9% of GDP, and miles away from thevaunted Scandinavian social support. Nor-way devotes nearly 3.3% of its GDP to sickleave and Sweden spends even more.

The OeCD does not report any data onmaternity leave for the united States, inpart because such benefits—if captured—show up in the sick leave data. Accordingto the data, the OeCD average expenditurefor paid parental leave is 0.38% of GDP;Sweden spends roughly three-quarters ofa point of its GDP on parental leave, com-pared to 0.62% for Norway and, surpris-ingly, just 0.29% for France.

If the united States were to devote thesame proportion of GDP to sick leave asthe rest of the OeCD, it would require anadditional $90 billion. To match the lar-

gesse of Norway and Sweden, the figurewould need to be closer to $350 billion. Forthe united States to reach european levelsof family leave support as a proportion ofthe economy, it would cost more than $520billion annually. To match OeCD spend-ing for maternity and parental leave alonewould be at least $70 billion annually—twicethat to match Swedish-level generosity.

These figures comport with other stud-ies on the costs of expanding family leaverules, which estimate minimum spendingamounts ranging from $159 billion to$306 billion. For example, the “FAmILYAct,” sponsored by rep. rosa DeLauro(D–Conn.) and Sen. Kirsten Gillibrand(D–N.Y.) and designed to provide 12 weeksof paid family leave, would finance the ben-efit through a 0.4% payroll tax hike. How-ever, this tax increase would only financeabout $30 billion in new annual spending,not nearly enough to cover the designedbenefits. For many Americans, paid familyleave sounds like a wonderful perk untilthey realize they’re the ones who wouldpay for their own benefit.

Benefits / Since providing families withpaid leave would cost so much money, weshould expect similarly outsized benefits.However, there is little evidence that itwould do so.

Proponents of paid family leave point tostudies showing that it can lead to improvedmaternal health and declines in depressionsymptoms. That would not only improvewell-being but also reduce health care costsassociated with these issues, most of whichare currently borne by taxpayers. Propo-nents also argue that paid leave should con-tribute to higher labor force participationrates, and in turn higher output, perhaps tothe extent that it could almost pay for itselfby generating higher tax revenue.

Quantifying how paid leave might affecthealth outcomes is exceedingly difficult, sowe will devote our attention to labor forceparticipation rates, especially consideringthat many of the benefactors of paid leavewould be higher-income households.

California and New Jersey both enactedsome form of paid leave legislation in the

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last decade; however, neither state experi-enced a sizeable increase in female laborforce participation rates. In fact, in bothinstances, female participation ratesdeclined, matching an overall trend in theeconomy. That does little to bolster theargument that family leave significantlyincreases the labor force.

Looking nationally, the u.S. femalelabor force participation rate stands at 57%,slightly below the pre–Great recession peakof 60%, but still well above the OeCD aver-age of 51.5%. Scandinavia’s average is about10 percentage points higher.

The rapid increase of women workingin the u.S. economy in the second halfof the 20th century was an unmitigatedgood for the economy and society, but it’sunreasonable to expect it to ever increaseat that rate again. First, women’s skills andtraining have changed drastically sincethe mid-1900s: today, women are on aver-age more educated than men and havea better employment history. Part of theeconomic boom created by the entrance ofwomen into the labor market owed to thefact that not only was there an increasingproportion of women entering the labormarket, but the average skill level of work-ing women increased concomitantly.

What’s more, the overt and systemic dis-crimination against women even enteringthe workforce that prevailed in mid-20th-

century America has largely disappeared.Women who enter the labor market todayare more likely to obtain jobs that makethe best use of their skill set.

Finally, the simple fact that the femalelabor force participation rate today isalready at a high level means that it’s diffi-cult to see the rate increasing anywhere nearits trend in the last century. The decades-long secular decline in the men’s labor forceparticipation rate, which is currently justbelow 70%, or 13 percentage points abovewomen, suggests a rough upper-bound forwomen’s rates. What’s more, we live in aworld where the female rates have essentiallystagnated for the last two decades.

The Affordable Care Act (ACA), the lat-est social welfare expansion in the unitedStates, was supposed to boost the u.S.economy by ending “job lock” and allow-ing workers to go where they would be mostproductive. To some degree it achieved this,although the manifestation of this free-dom—a rise in what has come to be pejo-ratively called the “gig economy,” referringto the increasing number of short-termprojects, consultancies, and other limited“gigs”—has given its authors heartburn. TheACA also effectively incentivized millions ofAmericans to leave the labor force becausethe legislation provides them—for betteror worse—the means to obtain affordablehealth insurance without holding a job.

Claiming that another social welfareexpansion—one that would reduce wagesand employment as well as create a dead-weight loss—can somehow drive increasesin GDP is nonsensical. There are numer-ous policies that would drive GDP growthand increase participation rates, but theydon’t rely solely on further welfare spend-ing—most of which would go to the well-off—changing the dynamics of the u.S.labor market.

Other people’s money / enacting generousparental support policies would doubtlesshave benefits for families. But these benefitswould primarily accrue to higher-incomefamilies and could potentially cost upwardsof 3% of GDP. If one parental leave policycould boost labor force participation ratesto rarified Scandinavian territory and addmore than 12 million people (the result ofa 10% increase in female labor force par-ticipation) to the workforce, these benefitsmight justify the costs. unfortunately,there is little evidence that this would bethe result of paid family leave, and it is hardto contemplate any economy-wide benefitthat would remotely approach the costsinherent in such a policy change.

making sound economic policy involvesthe government making priorities and rec-ognizing the opportunity costs of certainactions, but it’s been awhile since Congressor the White House acknowledged thetrue underlying costs of its actions. Forinstance, the final floor speech in supportof the ACA touted it as the greatest deficitreduction piece of legislation to ever passthrough Congress, despite the fact that itwill ultimately necessitate Congress spend-ing hundreds of billions of dollars a year.The supposed cost savings were ephemeralat best and non-existent in reality. Simi-larly, in 2016 Congress passed tax legisla-tion that made a plethora of temporary“tax extenders” permanent with nary adiscussion of whether permanence mademore sense than simply lowering tax ratesfor individuals or small businesses.

A statistic that has received almost asmuch attention as the expanding wagegap—at least among labor economists—has

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ThoMaS a. heMPhill is professor of strategy, inno-vation, and public policy in the School of Managementat the University of Michigan, Flint and a senior fellowat the national center for Policy analysis.

been the shrinking ratio of wages to GDP.After remaining remarkably stable for prac-tically the entire 20th century, this ratiobegan trending downward and—unlike inother such instances—it shows no signs ofregressing toward the mean. For capital totake an increasing share of total incomestrikes many as a disturbing trend, andthere have been numerous proposals to tryto “rebalance” the two.

The problem is that it isn’t simply thecase that capital is receiving a greater shareof national income. rather, a steadily grow-ing share of the portion allocated to laborgoes toward paying for benefits. This hasoccurred both because the cost of pro-viding benefits—especially health insur-ance—has gone up as well as the fact thatgovernment has prodded firms to providemore in the way of non-wage benefits.

While it may seem that asking employ-ers to provide workers with paid time off

to take care of an infirm parent or a sickchild is the compassionate thing to do,there is no free lunch. The cost of thiswill largely be borne by the workers, nomatter what mechanism is used to financethe benefit. There is no particular reasonto think that such a benefit would beprogressive—middle and upper-middleclass workers will be more likely to haveemployment covered by such a provisionthan low-income Americans. If we basethe payment for the worker who takesleave on his or her salary, then it willalmost assuredly be a regressive benefit.

mandating more paid leave changesthe composition of our compensation fur-ther away from wages and salary and moretoward benefits, with the bulk of those ben-efits going to the middle class and above.We are hard-pressed to embrace this as acompassionate solution to what ails theAmerican economy.

A Practical Approach toOccupational Licensing Reform✒ By ThoMaS a. heMPhill

Many Americans, including older adults, lost their jobs andcareers in the last recession. more than a half-decade sincethat recession ended, the national labor force participation

rate remains stubbornly near its lowest level in decades. As a result,occupational re-training and barriers to entry into professions andtrades/vocations have emerged as a publicpolicy concern.

A 2012 study by the Institute for Justiceof 102 low- and moderate-income state-licensed occupations across all 50 statesand the District of Columbia found that66 have greater average licensure burdensthan emergency medical technician (emT).On average, a cosmetologist needed 372days in training while an emT needed just33—with the latter certainly ranking sig-nificantly higher in relative public healthand safety risks.

of all u.S. working adults were required topossess a government license to legally per-form their occupation. moreover, in a 2003study, the Council of State Governmentsestimated that over 800 occupations werelicensed by at least one state government.

Washington pushes for reform / The Brook-ing Institution and the Obama administra-tion recently began efforts to encouragestate reform of occupational licensing,joining market-oriented think tanks andother institutions that have long advocatedsuch reform. In march 2015, the BrookingsInstitution released a policy brief, Reform-ing Occupational Licensing Policies, authoredby Kleiner that offers four policy propos-als intended to systematize and harmo-nize occupational licensing regulation. Hebelieves the proposals would reduce state-level regulatory and economic costs whilesimultaneously increasing employmentopportunities and expanding consumeraccess to services and goods.

His four proposals include:

■ employ cost-benefit analysis in theevaluation of occupational licens-ing. State government regulatorycommissions or agencies, in conjunc-tion with the relevant professionaland trade/vocational associations,would perform cost-benefit analysison both new and existing licensingregulations. The analysis would relyon both new and existing studies. Itwould also consider the necessity fornew regulation vs. better enforcementof existing regulations, the possibilityof alternative market-based solutionsto public regulation, and the expectedeffect of proposed licensing on practi-tioners and consumers.

■ Utilize federal engagement topromote best practices. The federalgovernment would establish aninteragency group to promote bestpractices in occupational regulation.States would also be encouraged toapply for federal grants for evaluatingand improving their current system ofoccupational licensing.

Occupational regulation is the tradi-tional bailiwick of state governments, withthe federal and local governments in a sec-ondary role. Since the middle of the 20thcentury, occupational licensing, a subset ofoccupational regulation, has been a regula-tory growth area for state governments andan increasing source of public revenue. In1952, the Council of State Governmentsreported that less than 5% of u.S. work-ers were required to be licensed to legallyperform their occupation. A recent studyby economists morris Kleiner of the uni-versity of minnesota and Alan Krueger ofPrinceton university reveals that, basedon 2006 data, approximately 29 percent

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■ embrace state reciprocity. The stategovernments would develop reciproc-ity agreements to readily accept occu-pational licenses granted by otherstates. Kleiner notes that despite dif-ferences in road conditions and otherrequirements, state governmentsalready universally accept other states’driver’s licenses when citizens move toanother state; so why shouldn’t theyalso be able to accept occupationallicenses?

■ adopt certification policies as asubstitute for licensing. When thecosts of licensing exceed the benefits,state governments should considershifting away from licensing to alesser form of regulation, such ascertification or registration, or evenno registration at all.

Along the same vein, in July 2015 theObama administration released a report,Occupational Licensing: A Framework for Policy-makers, jointly prepared by the u.S. Depart-ment of the Treasury, the Council of eco-nomic Advisers, and the u.S. Departmentof Labor. The report reviews the growth inoccupational licensing over the past fewdecades, its costs and benefits to Ameri-can society, and its effects on employment,wages, and labor mobility. The report alsooffers a look at an evolving American work-place, one that is directly affected by theemergence of ubiquitous information tech-nology (“the Internet”) and its attendantbenefits for the American workforce. It alsooffers a framework for licensing reformsthat includes the following “best practices”policies that balance licensing that “protectsconsumers without placing unnecessaryrestrictions on employment, innovation,or access to important goods and services.”The recommendations, many of which echoKleiner, include:

■ limit licensing requirements tothose that address legitimate publichealth and safety concerns. In caseswhere public health and safety con-cerns are mild, it recommends usingalternative systems that are less restric-

tive than licensing, such as voluntarystate certification or registration.

■ apply the results of comprehensivecost-benefit assessments of licens-ing laws to reduce the number ofunnecessary or overly restrictivelicenses through both sunrise andsunset reviews. Criteria in suchreviews can include: legitimate publichealth, safety, and similar concerns;considering existing legal remedies andconsumer/reputational rating mecha-nisms and other less burdensomeregulatory approaches; evaluating theadequacy of licensing requirements forquality and protection of consumers;the effect that the license has on prac-titioner supply and the price of goods

and services; and the administrativecosts of license enforcement.

■ Within groups of states, harmonizeregulatory requirements as muchas possible. This would include inter-state compacts that recognize licensesfrom other states, thereby increas-ing the mobility of skilled workers.The concern, though, is that thesecompacts would adopt the licensingrequirements of the most stringentparticipating states. If agreementon common standards for interstatecompacts is difficult, consider a “two-tiered” licensing structure with more

flexible requirements that wouldallow states to retain their rules whilepermitting interstate reciprocity toworkers who satisfy higher licensingrequirements.

■ allow practitioners to offer servicesto the full extent of their currentcompetency. Also, avoid categoricallyexcluding individuals with a criminalrecord, and instead only exclude thoseindividuals whose convictions arerecent and relevant, and pose a legiti-mate threat to public safety.

Yet, despite all of these initiatives,attempts to rein in the licensing of occu-pations have not met with much success.Significant state-level occupational reform

in recent years has been rare.

De-licensing / The may 2015 Monthly LaborReview, published by the u.S. Bureauof Labor Statistics, includes a paper byeconomists robert Thornton of Lehighuniversity and edward Timmons of SaintFrancis university investigating the rarephenomenon of what they call “de-licens-ing” of an occupation, i.e., “the elimina-tion of a license as a legal requirement forpracticing a particular occupation.” Theterm “rare” is apt, as the authors foundonly eight instances of the de-licensingthrough state legislative action over thep

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past 40 years. even grimmer, in four ofthose cases, efforts to re-license the occu-pations followed soon afterward.

As the authors found in their research,so-called “sunset” committees (involvinglegislative audits of licensing and licens-ing boards) have on rare occasions recom-mended that occupations be de-licensed,but those recommendations usually wereignored by the legislatures. Occasionalbills to de-license occupations have beendrafted, only to languish in committee,fail to be passed by state legislatures, orgo unsigned by governors. Furthermore,the authors noted several state legislativeattempts to collectively de-license multipleoccupations since 2011, with none beingenacted. Thus, the evidence reveals thatonce an occupation is licensed, it is likelyto remain so forevermore.

Thornton and Timmons have identi-fied several factors responsible for the exist-ing political economy of licensing. First,the powerful lobbying resources exercisedthrough professional associations are effec-tive at resisting de-licensure efforts. Second,such institutional factors as “regulatorycapture,” i.e., licensure oversight by mem-bers of the occupation, and “collectivechoice,” i.e., the costs to the licensed occu-pation members from de-licensing, are high,while the benefits to individual members ofthe public are low and broadly dispersed.Third, fiscal considerations, such as feesfrom licensing, may create net surplusesthat legislatures are reluctant to eliminate.Lastly, the authors note that should de-licensing occur, wages in the profession oroccupation/trade may be expected to fallimmediately as new workers with lowerqualifications enter the occupation. Con-sequently, the organized resistance to de-licensing by licensed practitioners is likely tobe considerably greater than pro-consumerefforts to liberalize these professions.

So, given these significant institutionalbarriers to occupational regulatory reform,what are the prospects for the occupationalreform proposals of the Brooking Institu-tion and the Obama administration?

Reform efficacy / Thornton and Timmons’

findings can be summed up in one word:depressing. The evidence is overwhelmingthat once an occupation is licensed, it isvirtually impossible to de-license it. Fur-thermore, legislative attempts to pass billsthat attempt to de-license multiple occupa-tions are met with highly effective lobbyingefforts, often built around ad hoc coali-tions drawing on considerable politicalresources. These coalitions can effectively“kill” occupational reforms at any step inthe legislative enactment process. more-over, in certain industries, particularly thehealth care sector, it is common knowledgethat third-party insurers will not reimburseunlicensed practitioners for their services.Thus, occupational licensure is the impri-matur for insurance reimbursement. Giventhis highly effective special interest groupdefense against de-licensing efforts in thelegislative or executive arenas, what policieshave the potential for reducing regulationof occupations?

Both the Kleiner and Obama admin-istration reform proposals include manyrational recommendations that wouldimprove the existing state-level regulatoryenvironment. realistically, for most occu-pations in the higher paying, higher edu-cation, health care professions, licensure isa requirement for both public health andsafety risk criteria and health care insurancereimbursement for services provided. more-over, even among moderate- to low-incometrades/vocations, a realistic attempt to de-license should emphasize a move to statecertification and its attendant lower barriersto occupational entry and entrepreneurialopportunities.

Given this grim reality, policymakersinterested in reform should shift their sightsto more modest policy proposals that have abetter chance of being adopted. Toward thatend, I recommend the following:

■ emphasize the use of cost-benefitanalysis on proposed legislation toenact licensure of newly emergingoccupations. Granted, cost-benefitanalysis has not been the regulatorypanacea that analysts once imagined.Still, it can underscore important

issues that policymakers shouldconsider. Hopefully this will shift theregulatory assumption toward greatermodesty and skepticism about thebenefits of such policy interventionsas licensure.

■ utilize state-level organizations andoccupational/professional associa-tions to promote best practices inoccupational regulation. Coordina-tion of state government efforts atreform should take place among thestates through the Council of StateGovernments and the representa-tive professional/trade associations.This institutional structure, becauseit directly involves the institutionalactors in the regulatory process itself,should be much more effective incoordinating government efforts toharmonize occupational regulatoryrequirements (through so-calledmodel regulatory language) across thestates and develop interstate compactsrecognizing licensure reciprocity. Ofcourse, policymakers should take carethat the professional/trade associa-tions do not circumvent this process,continuing the long, unhappy historyof special interest capture.

■ reassess the scope of practice amongexisting regulated occupations toallow for a full range of services tobe provided. While so-called “turfwars” between and among occupa-tions can be intense, a public airingof such concerns can often result inpublic policy solutions that increasecompetition and service availabil-ity and innovation, thus benefitingconsumers. For example, amongmental health care providers, whilenot without any inter-occupationalcontroversies over “scope of practice”boundaries, the present environmentdoes allow consumers a choice amongvarious licensed mental health provid-ers offering similar services at a rangeof hourly rates. In the case of nursepractitioners, however, the full scopeof licensed practice, i.e., independentof direct physician oversight and pre-

Summer 2016 / Regulation / 9

Free Parking’s High Coston Transit✒ By iKe BRannon

My morning commute in Washington, D.C. should be almostideal. my office is just over a mile from my home and there’s acity bus that goes almost door to door. However, I rarely take it;

inmostsituationsthebusridesavesmelittle timeover the25-minutewalk.The excruciatingly slow 1.2-mile ride is only partly due to traffic

iKe BR annon is a visiting fellow at the cato instituteand president of capitol Policy analytics.

right turn, a result of the various non-per-pendicularities in this town. The fact thatlegal parking begins just a few feet from the

intersection exacerbates the tightness of theturn, forcing the bus to slow to a near-stopto navigate the narrow opening. The pres-ence of that last parked car costs each busan average of five to 10 seconds.

But that’s not the only parking com-plication at this intersection. If one addi-tional car parks behind the last legal park-ing spot—a common maneuver in urbanlocales—the bus simply can’t make theturn. It and any traffic following it mustwait until the owner comes to move the car.

In essence, the tradeoff the city makes isto get one more parking space (and save ahandful of drivers each day a few minutes’walk from the nearest parking garage) inexchange for extending the commute timesof a couple buses’ worth of passengers eachdaybyfiveor10minutesandafewthousandother commuters by several more seconds.

That is a tradeoff common in bus/park-ing deliberations, which in D.C. are adju-dicated by the city’s Department of Trans-portation, given the broad constraints setforth by the D.C. City Council. Two blocksnorth of this bottleneck sits another awk-ward intersection where two streets inter-sect the bus route about 25 feet from oneanother, and the bus stop sits just beforethe first intersection. The right lane ofthe short stretch of road between the two

scriptive authority, has been grantedin only 21 states and the District ofColumbia.

Increasing labor mobility, reducing bar-riers to entry, improving the climate for ser-vice innovation, and increasing consumerchoice are all laudable goals of occupa-tional regulatory reform. But based on theunsuccessful track record of de-licensing inthe united States, more modest, targetedattempts at occupational regulatory reformshould be considered a major success ifadopted and implemented.

congestion. The factor that really length-ens my commute—and that of thousandsof others who regularly make the sametrip—is all the parked cars that slow thebus at all hours of the day and night.It doesn’t take many cars to obstruct abus; just a few will complicate merging,lengthen turns, and generally get in theway of a smooth commute home.

In essence, the city conserves streetparking as if it were a precious naturalresource. eliminating even one spot wherea car can park triggers a flurry of indigna-tion and anger, even if the spot might costeach of the thousands of bus commutersthat pass by more time than it saves thehandful of drivers who actually use it ona given day. The blind deference given todrivers in D.C. belies any notion that we’rebecoming a city of non–car owners.

For instance, at one intersection the busdriver must navigate a tighter-than-normal

Readings

■ “A License for Protection,” by morris m. Kleiner.Regulation, Vol. 29, No. 3 (Fall 2006).

■ A National Study of Burdens from Occupational Licens-ing, published by the Institute for Justice. April 2012.

■ “Blooming Nonsense,” by Dick m. Carpenter II.Regulation, Vol. 34, No. 1 (Spring 2011).

■ Occupational Licensing: A Framework for Policymakers,published by The White House. July 2015.

■ Reforming Occupational Licensing Policies, Policy Brief2015-01, by morris m. Kleiner. Brookings Institution:Hamilton Project, January 2015.

■ “The De-Licensing of Occupations in the unitedStates,” by robert J. Thornton and edward J. Tim-mons. Monthly Labor Review, may 2015.R

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10 / Regulation / Summer 2016

b r i e f ly n o t e d

streets is, by default, given to two parkingspaces. However, were it left as an extra lane(as it is during rush hour) it would allowbuses to avoid having to wait for an open-ing in traffic before resuming their routes.Without such a runway, buses must invari-ably wait for a red light before entering intotraffic, adding another 30–45 seconds tomost trips. These two parking spots alsohappen to be within a two-minute walk ofa parking garage.

The collective outcome of these deci-sions says volumes about the city’s perspec-tive. The convenience of a dozen driversoutweighs the collective cost they imposeon thousands of other commuters.

Scarcity reigns / A place with expensivehousing—as is the case in nearly everyresidential neighborhood in D.C. withinwalking distance of a metro stop—incen-tivizes developers to look closely at everynook and cranny to identify where theycan put more housing. In my Northwestneighborhood over the last 10 years,they’ve replaced a gas station with apart-ments, subdivided and expanded numer-ous townhomes, and generally built upany available space they can get theirhands on to the maximum extent thatthe government allows. That is a very realconstraint because there is bitter opposi-tion to any new development from thecurrent homeowners in the area.

The pitched battles on this front—man-ifested by a local resident issuing a deaththreat to a developer in a zoning meetingearlier this year—owes to more than justthe fear that more housing will reduceproperty values. The bigger issue for manyof these people is that more local residentsmay create more competition for the nearlyfree on-street parking in the neighborhood.A residential parking permit in D.C. costs$25 a year, which is less than 1 percent ofthe cost of private off-street parking in thedensest neighborhoods in town.

The sanctity of nearly free on-streetparking—which is, of course, tremendouslyscarce, since demand greatly exceeds sup-ply at the current price—has come to takeprecedence over all other interests. For

instance, a proposed apartment build-ing in the mount Pleasant neighborhoodrecently ran into opposition when thedevelopers revealed that it would removetwo on-street parking spaces to make wayfor the driveway to underground parkingfor the development’s denizens, somethingthat current zoning law requires. Whenpeople suggest a development that wouldcreate homes for hundreds of people ina heretofore middle-class neighborhoodshould be disallowed solely to preservetwo on-street parking spaces, somethingis clearly out of whack.

Free parking’s high cost / The conservativemantra when it comes to mass transit isthat it’s a wasteful subsidy, and in manyplaces it is. However, the subsidy for D.C.bus riders is a pittance when compared towhat the District (and other dense met-ropolitan areas across the country) pro-vides for drivers. Set aside the fact thatgasoline prices don’t cover the societalcosts of automobiles in major metropoli-tan areas when congestion costs are takeninto account; that we allow car ownersto park their cars for next to nothingon city streets in dense urban neighbor-hoods may constitute the biggest govern-ment subsidy, on a proportional basis,that exists in the united States. Parkingmeters in business districts now chargea price above the pittance that was thenorm a few years ago, but it’s still wellbelow the price of parking garages andremains so low that finding an openmeter most days and times requireseither a modicum of luck or several min-utes of cruising time.

On weekends in Georgetown, trafficgrinds to a halt for hours. Opening upanother couple of lanes—such as the onescurrently occupied by parked cars—wouldsolve the problem in a snap, but such amove would never be seriously considered.As a result, the congestion chases moreshoppers away than those who come forthe slight chance of almost free on-streetparking.

economists have a term they call “lexi-cographic preferences” to describe a situ-

ation where someone would rather havea little more of one thing than a lot ofanother thing. For instance, I like it whenmy daughter’s best friend does well inschool, but I’d rather have my daughterget an “A” on her biology test than herfriend win the Nobel Prize in biology. Lexi-cographic preferences aptly describe thecity’s implicit preferences when it comes toparking and buses—or parking and homeprices, as it turns out.

This mess undoubtedly is not theconscious result of any one governmentdepartment or officeholder’s decisions.It is the collective result of lots of sepa-rate actions, no small number of whichhave to do with car owners complainingloudly to their local city councilman orother government representative aboutthe lack of parking in the area, and a fewpeople shouting whenever there is anydevelopment that potentially reduces on-street parking. As a result of the squeakywheels, it becomes almost reflexive toallow on-street parking wherever thereisn’t a compelling reason not to. No onenotices (and few people complain) whenone parked car causes a 10-second busdelay. Or two delays. Or three. But theconsequence is that a few thousand com-muters collectively lose hours each day tosave a handful of drivers a few minutes’walk to a parking garage.

The reflexive progressive attitudewould be to argue that this discriminatesagainst the poor or is racist (since a pre-ponderance of Hispanics and African-Americans ride this particular transit lineand buses in general in D.C.). But giventhat those who agitate for parking pri-macy in urban neighborhoods like mineare the ones who are most adept in turn-ing policy issues into a class struggle, thatcard probably won’t get played.

A better perspective is simply that weall pay a high cost when government givesaway a scarce asset it controls, whether it’sradio spectrum, mineral rights, or pub-licly owned land in major metropolitanareas. And the people who benefit fromthis are usually those who least meritsuch largesse. R

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