Occupational licensing in a “competitive” labor market: The case of cosmetology

Abstract

A straightforward model of supply and demand is developed to analyze the regulation of a “Competitive “ industry —cosmetology —with demand shifts representing an enhancement of “quality “ and supply shifts representing restricted entry. Reducedform models are established to estimate both price and quantity shifts, adjusted for the joint determination of cosmetological prices, quantities, and state regulations. Our results reveal a significant net decrease in quantity from the imposition of state occupational regulation in the cosmetology market. Rents to cosmetologists would be on the order of $1.7 billion per year with deadweight losses totaling an additional $111 million per annum under reasonable and conservative assumptions.

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Data Sources

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We are grateful to Richard Ault, Dave Kaserman, Mark Thornton, Dave Saurman, Bob Tollison, Henry Thompson, and Pete Calcagno for helpful comments on earlier drafts. Special thanks are due to Carter Hill for his advice. We are responsible for any errors.

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Adams, A.F., Jackson, J.D. & Ekelund, R.B. Occupational licensing in a “competitive” labor market: The case of cosmetology. J Labor Res 23, 261–278 (2002). https://doi.org/10.1007/s12122-002-1006-6

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Keywords

  • Instrumental Variable
  • Equilibrium Price
  • High School Diploma
  • Deadweight Loss
  • Education Requirement