Document Type

Working Paper

Publication Date

6-2021

College/Unit

Chambers College of Business and Economics

Document Number

21-03

Department/Program/Center

Economics

Abstract

Occupational licensing has been shown to have many pervasive economic effects. Licensing restricts competition, which causes wage premiums, potentially induces rent seeking, and ultimately results in consumers having to pay high prices through both channels of reduced supply and producers passing on increased cost of doing business.

Licensing laws are passed at the state level; and thus, there can be considerable variation across states. Should there be much economic activity at state borders, this would be inconsequential. Yet, the existence of metropolitan areas spanning state borders begs the question of what effects can restricting competition be when competitive substitutes are easily available.

This theory is tested using major MSAs that cross state borders and data from the American Community Survey to show how the differing licensing schemes affect the incomes of practicing massage therapists. Ultimately, it appears that the effect of easily available substitutes of massage therapists in the border state mutes the effect of the wage premium that would be caused by a more restrictive licensure scheme. Not only do wage premiums not appear in geographically adjacent states, it is especially missing in border MSAs.

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