As a policy analyst for the Congressional Budget Office, you have been asked to estimate the potential costs of occupational licensing to the U.S. economy. Using demand analysis, a basic examination of the national costs of licensing could be developed as follows: Suppose that the entire 10 percent wage premium is from market power (as opposed to greater productivity from enhanced human capital), and further assume that labor supply is perfectly elastic and the labor demand elasticity is 0.5. Hypothetically, assume that the Census data suggests that there are approximately 68 million licensed workers in the U.S. Also assume that the average earning is $50,000. Calculate the potential job loss and the annual cost to consumers as a consequence of occupational licensing. Hint: Recall that the movement up the demand curve is the change in wages times the labor demand elasticity times the number of workers. To calculate the costs, what would a license worker make if they were unregulated? See Endnote 3 in “Reforming Occupational Licensing Policies”
Part B: As a policy analyst for the Congressional Budget Office, you have been asked to estimate the potential costs of occupational licensing to the U.S. economy. Using
Hint: Recall that the movement up the demand curve is the change in wages times the labor demand elasticity times the number of workers. To calculate the costs, what would a license worker make if they were unregulated? See Endnote 3 in “Reforming Occupational Licensing Policies”
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
