Peter Blair on Occupational Licenses and What They Signal in the Job Market

Chancellor: Hello and thanks for joining us for the Poverty Research and Policy Podcast from the Institute for Research on Poverty at the University of Wisconsin–Madison. I’m Dave Chancellor. Our guest for this episode is Peter Blair and, when we sat down to talk, I asked him to introduce himself.

Blair: My name is Peter Blair. I’m a professor at Harvard University in the Graduate School of Education. I’m an economist by training. I’m also a faculty research fellow at the National Bureau of Economic Research, the NBER.

Chancellor: When Professor Blair visited us at IRP in the fall, we talked about a paper called “Job Market Signaling through Occupational Licensing” that Blair wrote with Bobby Chung that looks at the ways in which licenses that people need for jobs contribute to differences in pay and if the story is different depending on someone’s race or gender. And, if you stick around to the end, he also talks about culture challenges in the economics profession, mentoring, and how growing up in the Bahamas influenced some of his goals as an economist. But back to this issue of licensing, I asked him to give us some background to help understand what this paper is about.

Blair: A really big idea in economics is the importance of information, right? And so the premise for the paper goes back to two very important papers in economics. One is a paper on job market signaling and education as a job market signal. That’s by Spence in 1973, and this is a Nobel Prize winning paper. And the second one is about asymmetric information by George Akerlof which also has been a really foundational paper within the canon of economics. Both of these papers really say that in the absence of information markets may not function very efficiently. So say for example that firms wanted to hire workers but they didn’t know the ability of workers. They might end up hiring no one. But if you had education, the fact that it’s difficult to get into a university like UW–Madison, that conveys information about the quality of the person, even independently of what they learned there. And that information can be really useful for allowing employers to be able to figure out who they should hire. And so what we do in the paper is we take this insight and apply it to a context—that’s particularly policy-relevant right now which is occupational licensing. So in the U.S. between 20 to 25 percent of U.S. workers are required to have a license in order to work legally for pay. So in many states, this might be barbers, in some states it could also be florists like in Louisiana. There are some professions like lawyering and also doctors that are universally licensed. And so the question really is, what does licensing do? And the traditional view in economics has been that what occupational licenses do is the function as a restriction to entry in a profession. And so you have fewer people being able to practice that profession for pay because of the license. And as a result, wages are going to go up. And it’s not obvious that quality is going to increase too, and so that’s traditionally been the story.

Chancellor: Where Blair and Chung enter the literature is by asking if that story has been the same depending on whether someone is male or female or African American or white.

Blair: And so we look at, are licenses valued in the same way across racial and gender groups? And to kind of provide an additional context to this, we know that there’s a huge amount of inequality within the labor market in terms of if you look at just median wages between women and men, between African Americans and whites, you see that there are huge differences, right? And the question is really, is some of this driven by differences in information, and could licensing actually provide the signal to the labor market that allows it to function in a way that, on the surface seems to be less discriminatory, right? And what we find is, we find that for women and minorities who have licenses, the racial and the gender wage gaps are smaller. And so a natural question is, well, why? What is it about the license that it’s conveying about women and minorities? The first thing we find is that for minorities, licenses that function as signals of nonfelony status are particularly useful.

Chancellor: For their full paper, they cover more ground on how licenses might reduce wage gaps by gender and race, but for this podcast we really focused on this issue of licenses signaling nonfelony status – and how that matters for black men.

Blair: We have some data from the American Bar Association that allows us to say whether an occupation is licensed and whether this license occupation allows folks with criminal records to have access to that occupation. And so this is really similar to a lot of the ban the box research that you’ve seen. Where in that context, the point is really what happens when you make it difficult for firms to learn about the felony status of workers. We’re saying, what happens when a license explicitly has that information? Right? And we find something that, at first blush seems surprising, but at second blush is not that surprising, which is that the licenses that signal non-felony status, those are the licenses where the wage gains for black men are highest. And so in a lot of ways, tying this back to these two papers about the importance of education as a labor market signal and also the extent to which asymmetric information can have a negative impact on the market. Firms want to know about the felony status of African American men and in this context, the license is providing that information, and this is one reasons why the licensing is going to be reducing racial wage gaps. Now this is not saying that licensing is the most efficient way to do it, but this is really saying that this is saying that the market is demanding this sort of information. And this is the new fact that we have really brought to the licensing literature, which is that the felony signal of licenses is actually incredibly important for a particular demographic within the labor market for African American men who face a disproportionate amount of incarceration.

Chancellor: I asked Professor Blair to tell us more about how this work connects to research about ban the box policies.

Blair: There have been some terrific studies on ban the box policies. So what these policies are is they make it illegal for firms to ask workers whether or not they have a record before applying for these jobs. And so papers, for example by Jennifer Doleac and Ben Hansen, also papers by Amanda Agan and Sonja Starr—and they’ve really shaped our priors about what these policies really do—because naively, you might think that asking whether or not somebody has a felony is something that’s going to allow for discrimination. But what they find is that when you remove this information, you actually see instances of more discrimination against African American men who the policies were aimed at helping. We think about the work we do with occupational licensing—and I should mention that this work is joint work with one of my former PhD students, Bobby Chung, who is now a postdoctoral researcher at the University of Illinois Urbana Champaign and Bobby is an integral part of this work so I want to make sure that he is acknowledged. We think about the licensing as providing this information about felony status as opposed to removing it. And we find again something that’s very similar. So, in particular, we find that the returns to occupational licenses that preclude ex-offenders are primarily coming through these ban the box states where it’s otherwise difficult to find out this information about whether somebody is an ex-offender or not. Let’s just pause there for a moment. So what this really is saying is that in contexts where it’s easier to ascertain this information, firms don’t need to use the license in order to ascertain this information so it really is the fact that the license is bringing this information to the labor market that’s responsible for the narrowing of the racial wage gap. And this is important from a policy standpoint because we’re starting to understand the ways in which licenses differentially affect African American men relative to other demographic groups within the population.

Chancellor: Given their results that find that licensing completely reduces wage gaps for African-American men, you might ask if there are alternatives that are less restrictive than licenses, but that might be able to accomplish the same goal.

Blair: And one key alternative could be certificates which don’t restrict who can practice the occupation but they only restrict what you can call yourself. And so, in our dataset, we’re also able to observe whether someone has a certificate or not and so we can do this comparison directly to see how do the wages of a worker change when they have a certificate versus they have a license and we can do this separately by worker’s demographic group, by race, and by gender. And we can also do this separately by the types of license. So you can have an ordinary license where you just show up and fill out a form and pay some money. Or you can have a license where this license precludes folks who have a felony record. Or you can have a license that also has some additional human capital requirements like taking a test or doing some additional credits at a local college. And so what we do when we run this race is we find that for white men our economic intuition is exactly right, which is that certificates which are less restrictive than licenses are just as good as licenses in terms of boosting wages. And this was Milton Friedman’s point, that certificates would be just as good as licenses. It turns out that though that this is primarily correct for white men. When you look at African American men, it’s really these licenses that provide this non-felony signal that are still incredibly powerful in terms of reducing racial wage gaps. And the comparable certificates that don’t have this information barely move the needle in terms of wages too. And so what this is telling us is that there’s asymmetric information in the labor market about the extent to which firms believe that African American men are likely to have had a record. And that firms are using that information to make hiring and wage decisions. And when that asymmetric information is reduced by providing it to the labor market, that that reduces racial wage gaps for black men who don’t have felonies.

Chancellor: Professor Blair says that this raises an important issue. So, maybe licenses that have felony restrictions are just really good for black men who don’t have records, but he says we really need to think about how much harm these sorts of practices are doing to black men who do have records.

Blair: And so this was a really big question that emerged from this study because obviously going into this study, we did not expect to find such huge effects. And we tried to really beat up on our estimates of the returns to licenses that signal felony status, but we just could not reduce them regardless of what we did. And this paper really wrecked us. Because you begin to see the extent to which it’s super important for black men to signal non-felony status. And so, this has really motivated some additional follow on work that also joint with Morris Kleiner who is at the University of Minnesota and the Minnesota Population Center and also Jason Hicks who is one of his PhD students there as well. We’ve gotten a grant from the Equitable Growth Foundation to collect the history of licensing laws that affect ex-offenders and we also have an outstanding proposal to the NSF and a few other foundations to fund this data collection exercise so that we can look not just at black men who are in the labor market, but we can also look at folks who are ex-offenders and look at their ability to re-enter the labor market in light of these restrictions. Now when we think about economic theory, it’s not obvious which way this is going to go. So it could be the case that in the presence of these restrictions, this actually allows people to search more efficiently because you don’t go to jobs where people are more likely to discriminate against you and so your search is a bit more efficient. It could also be the case that well, what’s happening is you have a lot more avenues that are blocked off to you. And so that way, perhaps you’re not even able to return to a profession that you practiced before you were incarcerated. And we really want to get at what are these impacts for men who are incarcerated because this is a growing challenge in the U.S. context and if licensing restrictions are really creating a barrier to people being able to reenter the labor market, we would want to know what the magnitude of that is and to think about what can we do to ameliorate that problem.

Chancellor: And Professor Blair says that it’s important that we think about these licensing restrictions within the larger context of racial discrimination.

Blair: There is a connection between licensing restrictions and also the equal protection clause of the Constitution too in terms of, is it providing an undue burden on some people within the society to have these sorts of felony restrictions too, especially in light of the disparity in racial arrest in the U.S. context. So when we think about licensing reform too, there’s also an element that’s a constitutional element as well. And we don’t deal with that directly in the paper. But this is something that’s really motivated us to collect the history of licensing laws to see when did they change, why are they changing? And could it be the case too that some of this is changing in response to some of the progress that’s happening in the U.S. context too? When you look back at the establishment of many licensing laws that—for example in the State of Virginia, they were to, in quotes, exclude the incompetent and the blacks. And so some licensing laws were explicitly racial in nature, right? And, in spite of that, we’re finding that this information is still important to workers to overcome another friction which is racial discrimination within the labor market. And I think that’s why it’s so important to – when we think about doing research to really look at it through the lens of the experiences of different people within the labor market because in our particular context, occupational licensing is providing an informational signal that’s helping workers who face either types of discrimination to overcome that discrimination. And, it’s something that you may not expect at first blush but when you think about it more deeply, you realize that information is going to be really important for folks who might face other hurdles within the labor market.

Chancellor: And Blair says a caution here is that it’s possible to frame their overall results in a way misses the deeper implications of this work.

Blair: We find that these licenses that can signal non-felony status are reducing the racial wage gap completely, right? And some folks might be thinking, well, there’s no discrimination, it’s only the fact that there’s differences in the arrest records of minorities versus whites. And I think that that’s a very simplistic way to look at it. I think a deeper way to look at it is to look at it is really to recognize, well, why is it that it’s so important for black men in the U.S. to signal non-felony status? It’s not the case that black men are inherently more predisposed to criminal activity. That’s certainly not the case, right? And so we have to then ask, what is it about the way in which society is configured that has resulted in a situation where black men are more likely to be arrested and incarcerated and, as a result, need to signal that they don’t have this record if they don’t have it, more so than white men? And so this paper is really shifted the way that I think about research in terms of getting at some of those deeper, more structural questions. Because a very stubborn feature of the data is that being able signal that you’re not a felon is incredibly important, and differentially so for black men, especially in contexts where they can’t otherwise signal that information. This paper is really wrecked me as a researcher from that standpoint because Bobby and I didn’t enter this paper looking to focus on the felony aspect of it. It was just when we looked at the raw data and we saw that licensing was reducing the racial wage gap, we started to think, well what could the license signal about signal about black men that it’s not signaling about anybody else? And one of the first things that popped into mind is it could be signaling differences in the felony status of workers and that’s when we collect the data and we found this fact which was surprising but then also, there’s an aspect of it too that’s really sad.

Chancellor: As Blair mentioned before, he wrote this paper with Bobby Chung who was a doctoral student at the time. And he says that the mentoring relationship they developed has influenced the way he’s thought about questions of hierarchy within the economics profession.

Blair: So for me, one of the things that was an absolute joy about this project was that it was my first with a PhD student as a young faculty member. And at the time I had just graduated from the Wharton School and I had accepted a job at Clemson University in the economics department there. And Bobby Chung was a PhD student and he and I worked on this paper for probably about two years before we released it and it was just a lot of fun being able to work on this paper with Bobby and to see his growth and development throughout the process. And also my growth and development as an advisor and as a mentor. And I absolutely love working with students. I know that one of the things that we’re talking about in the economics profession is the culture of the profession. And we’re talking about things like the way in which women and minorities feel in the profession. We’re also talking about hierarchy within the profession and how where you teach or where you went to graduate school can matter for how people perceive you and also for how you move in the profession. And, in my view, this experience of writing this paper has been an example of why I think mentorship is really important. This paper, which I wrote with a PhD student, has become a really important paper for both of us. And it didn’t matter that we were at a state university in South Carolina. The profession looked at the work and saw the work as being valuable and I think it was really important for me to set high expectations of all of my students and to say that we are going to do excellent work. I often say to my PhD advisees, I want you to be better than I was when I was in graduate school. I want you to exceed me. And that’s my highest hope and my highest ambition for my students is that they exceed me. And the profession does respond to excellence. There are tons of barriers that people might face depending on what the institutional affiliation is or their race or their gender. And we need to think about how do we move those in a concerted way and I would definitely say to my colleagues who are faculty members one way that we can materially do that is in our advising. Right, and taking the time to really invest in developing people as researchers. And also in terms of working with them as coauthors too so that they can see the whole process from start to finish. And I’m deeply committed to doing that, right? One my current mentees at Harvard, Anna, who is a predoc, she recently coauthored an op-ed in the New York Times with Dr. Lisa Cook talking about the state of the economics profession and the ways in which it creates barriers to black women. And Anna and I are working on a paper in which she is a coauthor. And so one of the things that’s wonderful about that is she will have that paper on her CV, she will know the process of doing research from start to finish. And that’s how we achieve both diversity and excellence. And I think we need to have a commitment to both of these things, right, because as we open up the profession to more diverse perspectives, we can cover some of our blind spots and I think when we look at this paper with licensing, when we look at a lot of the work on ban the box, it’s easy to believe that these policies might be good policies without testing them and that’s why we need to test these policies by using data and that’s why we need people who have diverse perspectives to be able to ask these sorts of questions. And that’s also too why we as researchers of all different backgrounds, all different colors, from all different universities need to make a commitment to mentoring folks. Especially people who may not traditionally be interested in economic programs.

Chancellor: Finally, as we were finishing our conversation, Professor Blair talked to me about how he became interested in economics and how those initial interests are still driving the kinds of work that he does.

Blair: I grew up in the Bahamas and I am one of seven kids so I have six older brothers and as kids growing up in the Bahamas, we sold fruits and vegetables in the Nassau straw market. We sold cookies in the downtown area and so I got to really be in the marketplace and that was one of the things that really stoked my passion for economics. And then also growing up in developing country too, whenever markets move, you experience that. And so something that was really important for me was really thinking how can I be someone who can help to provide advice, policy advice to the government of the Bahamas and also to governments of other small developing countries as well too. And in light of Hurricane Dorian which is really had a very devastating impact on the country, that comes to mind even more. The importance of economists of provide policy advice to think about how you structure an economy, especially about how do you structure an economy that is resilient in the face of climate change because we know for a fact that storms are becoming more powerful. We see Hurricane Maria that was in Puerto Rico and now Dorian that’s in the Bahamas too. So that’s been occupying a lot of my mental real estate too, really thinking about how do we has economists delve into thinking about how society functions especially within the context of climate change and I’m really grateful that a lot of my colleagues in the profession have contributed towards a relief fund for the Bahamas and in the months to come, I’m thinking a lot too about how can we bring the intellectual resources of the profession to think really deeply about how do we help to structure economies in ways that make them more resilient in the face of climate change. So the Bahamas is certainly on my mind in a very deep way given that it was the place that really was the birthplace for a lot of my passions for being an economist and experiencing the real economy.

Chancellor: Thanks to Peter Blair for taking the time to talk with us. If you want you want to check out the paper we talked about in this episode, it is “Job Market Signaling through Occupational Licensing,” which is the National Bureau of Economic Research Working Paper number 24791. This podcast was supported as part of a grant from the U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation but its contents don’t necessarily rep resent the opinions or policies of that Office, any other agency of the Federal government, or the Institute for Research on Poverty. To catch new episodes of the Poverty Research and Policy Podcast, you can subscribe on Apple, Stitcher, or Google Play Podcasts. You can also find all of our past episodes on the Institute for Research on Poverty website. Our theme music for this episode is “Staring Straight” by Maarten De Boer. Thanks for listening.