Marc Law is an applied microeconomist with research interests in regulation, political economy, urban economics and economic history. He received his M.A. and Ph.D. in economics from Washington University, St. Louis, where he studied under the Nobel Prize winning economic historian Douglass North. He joined the UVM faculty in 2003. Law grew up in British Columbia and is a Senior Fellow at The Fraser Institute in Vancouver; his local civic involvement includes serving as a director of the Lake Champlain Chamber Music Festival. Law’s lecture on November 29 at 4 p.m. in Memorial Lounge, Waterman, is titled “The Role of Government Regulation in a Modern Economy: Lessons from the Past” and is part of The College of Arts and Sciences Full Professor Lecture Series designed to recognize faculty newly promoted to full professor rank.
Marc, can you describe more about your research in licensing?
During the Progressive Era, advances in knowledge and specialization led to the emergence of modern-day professions. One of the outgrowths if this was regulation of occupational licensing—that is the legal permission workers must obtain before doing their work. Most studies argue that licensing regulation is used to restrict entry and reduce competition; the evidence from the Progressive Era suggests that regulation arose to improve markets as specialization and advances in knowledge made it more and more difficult for consumers to judge the quality of professional services. Today about 30% of the labor force is required to be licensed to do their work.
Typically, consumers don’t face many adverse effects from low-quality work; or they can pretty easily evaluate the quality of work for themselves. If you get a bad haircut, you won’t go back to the same barber. On the other hand, problems arise when harm from sub-quality work is substantial. If you receive medical treatment by a “quack,” you may not have a second chance to interact with that person. This problem of “asymmetric information” may result, with consumers unable to distinguish between high-and low-quality work.
Historically how has the practice of licensing affected minorities?
The claim often is that licensing is an entry barrier to professions, which disproportionally harms minority workers because they may find it expensive to meet requirements, or because licensing is used as a deliberate effort at exclusion.
In a paper I wrote with Mindy Marks we showed that licensing laws introduced in the 20th century actually increased opportunities for blacks and women. If uncertainty about worker quality gives rise to statistical discrimination over observable characteristics like sex or race, then licensing regulation that serves as an imprimatur of quality can increase participation of minority workers in regulated occupations.
In our research, only in barbering did licensing have a negative impact on minority representation. By functioning as an entry barrier, barber licensing may have reduced opportunities for blacks, which is consistent with the conventional view of how licensing affects minorities. However, for some occupations, licensing had no effect.
You’ve also written a lot about comparing US and Canadian urban development – can you describe how the development is the same and how it is different?
Cities are important engines of growth—they attract large labor pools and facilitate specialization. Cities are also creatures of the state. How large and influential they become also depends on underlying political and social factors.
In a series of papers I wrote with Sukkoo Kim, we investigated the impact of political institutions on dimensions of urban development in the U.S. and Canada. Many would say that they are the most similar countries—they have a similar legislative system and share a common border. They have a similar colonial heritage. But the countries evolved very differently, and that created a very different dynamic between cities and provinces in Canada as compared to cities and states in the U.S.
What’s interesting in the U.S. context is that states are relatively weak compared to cities. Municipalities collect about as much revenue as states—sometimes more. In Canada provinces are really powerful. Cities depend on provincial governments to fund services—very often the amount Canadians pay in municipal taxes is small compared to the taxes they pay to provinces.
In the Canadian context, capital cities are very large compared to surrounding municipalities. In the U.S., state capitals are almost always located in the middle of the state and are often smaller than other large cities in their states. This was done deliberately in the U.S. to make sure state governments remained relatively weak—state government would not necessarily be dominated by an urban area.
So, the power balance evolved in both countries in ways the founders hadn’t really intended?
When the Canadian constitution was written, the U.S. Civil War was very much in the background—the conventional wisdom was that the war happened because states were too powerful. So, the Canadian constitution was written in a way that power would devolve to the Federal government. But provinces were still given large areas of autonomy which became extremely important. Public welfare was left to the provinces, before the rise of the welfare state, so provinces took the lead in many policy initiatives. The Canadian single-payer health care system, for instance, evolved out of a Saskatchewan initiative—it didn’t happen from the top down.
John MacDonald would have been dismayed. As the central figure in the Canadian Confederation, he had in mind a strong central government and relatively weak provinces. Conversely, Thomas Jefferson had in mind strong states relative to the Federal government; he was even suspicious of large municipal governments. Both countries evolved in ways that their founders didn’t envision.