Varieties of (regulatory) : Occupational licensing in the UK, Israel, Germany and Sweden *Draft – please do not circulate without author's permission **All feedback is welcome Yair Osheroff1, David Levi-Faur 4th ICPP, panel: Public policy and the policy state, June, 2019

Abstract Since the introduction of the concept of Varieties of Capitalism (henceforth: VoC) (Sosckie and Hall, 2001), theoretical and empirical work had discussed it in different contexts and with regard to specific issues in political economy. This study examines Occupational Licensing (OL) by using the framework VoC suggests. While explanations of OL sought mainly in the microeconomic aspects of the phenomenon, its macroeconomic aspects and institutional settings were left underexplored. This study addresses this caveat, and aim to understand OL in light of VoC. For that aim we conduct a comparative research of UK, Israel, Germany and Sweden – four countries that differ in the number of OL regimes under their jurisdiction and in their restrictiveness. By comparing institutions of political economy of the states, this work examines what factors in the level of the state explain the differences in the degree of OL between UK, Israel, Germany and Sweden. According to the framework of VoC, we focus on three key factors that complement and correlate with OL: vocational education, labor unions, and privatization. The study is expected to advance the understanding of the broader context of the political economy of OL. Moreover, it would contribute to the scope and comprehension of the concept of VoC. In particular it would shed light on the place of OL as an institution within the broad institutional settings of political economy.

Introduction The Concept of Varieties of Capitalism (henceforth: VoC) is an important and central concept in the institutional study of political economy. The framework it lays allow understanding social phenomenon in their broader political economy contexts, pertain them with other institutions in their system, and compare between them and counterparts in other systems. Since its introduction,

1 The department of political science, The Hebrew University of Jerusalem, [email protected]

1 theoretical and empirical works had discussed VoC in different contexts and with regard to specific issues in political economy. Nevertheless, the place of regulatory governance in the framework of VoC is yet underexplored. Scholars of VoC have given only little attention to as part of the institutional infrastructure in the political economy environment (for example see: Phillips, 2008). Studies that follows VoC mainly refer to specific subjects of regulation as of antitrust (Tate, 2001) and trade unions (Thelen, 2001), consider them as given in the institutional settings, while not discerning their varying place within it. Similarly, scholars of regulatory governance have given only little attention to the concept of VoC in their efforts to understand regulation; while some studies had applied the main idea of VoC that economies vary in their settings to regulatory governance (Levi-faur, 2006; Thatcher, 2002)), and only few studies addressed the framework in explaining specific regulatory regimes (Aguilera et al., 2013). This study address this underexplored intersection of VoC and regulatory governance. It focuses on occupational licensing (OL), a state regulation that restricts the practice of occupation by a demand for license which its obtainment is contingent on meeting licensing requirements (Kleiner, 2015). OL reflects pertinently the mentioned caveat. Literature of VoC overlooks OL, despite it being an important and extensive regulation in the labor market which plausibly interact with other institutions VoC highlights, and varying between economies. Likewise, the research of OL seeks explanations to the phenomenon almost exclusively in its microeconomic aspects, while disregarding broader context of political economy, let alone the context of VoC. To examine OL in light of VoC, this study conducts a comparative research between the degree of OL in the health sectors of UK, Israel, Germany and Sweden. The degree of OL is highest for the UK, then Israel, lower for Germany, and Sweden is with lowest degree. By comparing institutions of political economy of the states, this work examine what institutional factors explain the differences in the degree of OL in the health sectors between UK, Israel, Germany and Sweden. Understanding the place of OL in the institutional setting of the political economy of the state, may contribute to the scope and comprehension of the concept of VoC. It may shed light on further aspects to the varieties of economies, in particular regulatory aspects. Evidently, it may also advance our understanding of the evolvement of OL in broader state and sector contexts.

2

The paper begins with presenting the measurement to compare OL between the states, and the results it yields. It follows with presenting the framework VoC suggest, and modifying it to OL while illuminating the relevant aspects of the institutional context. It further compares and analyzes selected occupations in the health sector to examine the analytical framework.

Variance in OL between the states How to measure OL To compare between the OL of the states, we first need to determine how to measure OL for this purpose. In this work we highlight the evolvement of OL as part of a state's institutional settings, thus its measurement should reflect its broad institutional context. The most common method to measure OL in the current research of OL is to survey the share of the workforce that holds a license to engage in their jobs (Kleiner & Krueger, 2013; Koumenta & Pagliero, 2016). It is mostly common in researchers of economic perspective that examine its effect on market functionality as reflected in prices and productivity. This dimension of OL is determined significantly by the market size of the licensed occupations, and it sheds light on the impact of the institutions of OL, rather on their evolvement of institutions, and therefore it is less relevant for this work. Another method to measure OL is to survey what OL is applied for (US Office of Economic Policy, et al. 2015; Friedman, 1965; Zhou, 1993). Often, for this purpose the research of OL uses the number of licensed occupations as an indication, so a higher number of licensed occupations, reflect a higher degree of OL. However, such indication might come insufficient, or even misleading. In the context of licensing, licensed occupations are composed of tasks, that engaging with them is restricted (Abbott, 1988; Osheroff and Kleiner, 2018). Therefore, the degree of OL is more accurately evaluated by the tasks it restricts, rather than the number of occupations. Moreover, a more nuanced observation of the degree of OL, would also include an examination of the type of tasks, that way it would tell more than its mere magnitude. OL in the health sector s Even though this study aims to understand OL in the broad state level, it focuses on a specific sector. It draws on the understanding that there are significant differences between sectors within states (Levi-faur, 2006), yet they are still nested in the broad state system of political economy. In addition, narrowing the comparison to a sector, provides more control for the comparison. Focusing on the health sector reinforces the control – relative to other sectors, health sectors in

3 developed economies are similar in terms of the scope and size of their industry, in their development, and in the occupations they include. The health sector is also a proper case study of OL because it is a central sector, abundant with licensed occupations. To measure the degree of OL in the states' health sector, we include all health occupations that are licensed in the states, according to the broad International Standard Classification of Occupations of 2008 (ISCO-08). As mentioned, counting occupations might not be sufficient to understand the scope of OL. However, for the most part and for the main tasks, health occupations2 in different states share similar tasks. An evident for this similarity between occupations, can be found in that tasks that are restricted by licensing in one state but not in another, are practiced by a similar occupation in both of them. A survey of the licensed occupations shows a remarkable variance (see a list of the occupations and their licensing in the appendix). Of 31 occupations that are licensed in at least one of the state, UK is the state with the most licensed occupations with 24, Israel follows with 20, Germany with 12, and the state with least licensed occupations is Sweden with 9. Interestingly, a similar variance is shown also in OL in general in the states – in the UK there are around3 150 licensed, in Israel 135, in Germany 90, and in Sweden 50 (Humphris & Koumenta, 2015) (see table 1).

Table 1 – number of licensed occupations Licensed occupations Licensed occupations in the health sector in general UK 24 ~150 Israel 20 ~135 Germany 12 ~90 Sweden 9 ~50 Total licensed 30 occupations

2 Some occupations are entitled differently between states, but if their tasks are similar I regard them as similar. 3 There are no accurate surveys of the licensed occupations in these states.

4

To characterize the variance in licensed occupations more in detail, we divide occupations to four groups that differ in the type of tasks and their centrality in the health industry: core occupations, assistance, paramedical, and technical. The division shows that in the core occupations, there is a general similarity between the states, with a gap of only 3 out of 11 occupations from the state with the most licensed occupations, the UK with 10, to the state with the least, Germany with 7. In the assistance occupations there is more salient gap, with only 1 and 0 licensed occupations out of 5 occupations in Germany and Sweden as oppose to 3 in the UK and Israel. The paramedical group is responsible for the biggest gap, both in nominal and relative terms with the UK and Israel 7 licensed occupations out of 9 in total, and 0 licensed occupations in Germany and Sweden. The group of technical occupations also show a great variance, but slightly different than the general tendency. UK and Germany have 4 licensed occupations out of 5, while Israel and Sweden have 1 and 0 accordingly (see table 2).

Table 2 – number of licensed occupations according to type UK Israel Germany Sweden Total Core 10 9 7 9 11 Assistance 3 3 1 0 5 Paramedical 7 7 0 0 9 Technical 4 1 4 0 5 Total 24 20 12 9 30

Explaining OL – from interests to institutions Explanations of OL draw mainly from the public choice thought. In both the academic scholarship and the public policy arena there is a fierce dispute on what explain OL – is it applied with the aim to promote the public interest or with the aim to promote the narrow interest of practitioners of the occupations. According to the public interest view of OL, the licensing restricts the practice of occupations only to practitioners who meet the licensing requirements, in what promotes quality assurance and prevent risks and market failures in the licensed occupations (Moore, 1961; Ogus, 2004; Shapiro, 1986). According to the latter view, restricting the occupations, only impose limitations on the competition in the occupations, and consequently increase the income of practitioners (M. Friedman, 1962; Stigler, 1971). In addition, a limited number of works, in line

5 with the trend of bringing the state back in (Evans, Rueschemeyer, & Skocpol, 1985), highlight the interests and the role of the state in the politics OL. These works assert that the state promotes OL mainly to control and utilize occupations for its own agenda, and to increase its capacity over the market. They also point out to the possible correspondence between the state interest and the public interest (Osheroff, 2019; Zhou, 1993). Varieties of capitalism – the place of OL Albeit an extensive discussion, the broader institutional context of OL was thus far underexplored. A broad institutional perspective to examine OL does not necessarily undermine nor reinforce the validity of the asserted explanations, rather it illuminates the context for the politics of OL. From this perspective of OL, the framework of VoC is particularly suitable. The concept of VoC, first articulated by Sosckie and Hall (2001), suggests a framework to analyze economic structures of modern capitalist states on a continuum between two ideal types of economies. One is Liberal Market Economy (LME), according to the economy is mostly stirred by private commercial actors as dictated by demand and supply and free competition. The other type is Coordinated Market Economy (CME), according to the economy is mostly stirred by prefixed arrangements as dictated by host of actors including the government. While LME is more liberal, flexible and volatile; CME is more rigid, bound and stable. Broadly, on the continuum of LME to CME, UK leans towards the liberal end, Israel is somewhat in the middle, and Germany and Sweden leans more towards the coordinated end.4 Further works suggest more nuanced division for market economies and suggested some different variations (See for example: Hall & Gingerich, 2009; Jackson & Deeg 2006), yet the original broad division is still accepted as valid. Reviewers of the original framework of the VoC argue that by the two-sided continuum, the framework overlooks other important varieties in capitalist economies (Campbell & Pedersen, 2007; Jackson & Deeg, 2006); partly also for it was applied originally only to established democracies affiliated with western Europe (Schneider, 2009). These critics however relevant, do not undermine the original typology, yet they require to look at nuances within varieties, and to identify the general cluster of the economies under examination (Hope & Soskice, 2016). Adding to the critics of the traditional division of VoC, it is important to note that today there is recognition in the importance of sector by sector analysis according to the framework

4 This categorization refers to the economy in general and is not sector or institution sensitive.

6

(Levi-Faur, 2006). Such analysis can discern the differences in the typology between sectors that may vary greatly within a state. Originally the framework of VoC turned to commercial firms as the dominant actors in the economy, but I take a more pluralistic approach that takes into account various actors. Previous works that have used the framework had also shifted the focus to other actors, for the focus on firms is deemed too narrow to comprehend all aspects of the economies (see for example the work by Hancké, Rhodes and Thatcher (2008) that includes studies that focus on other actors than firms). Extending the scope to is necessary in this work in particular owing to the prominent role of other actors in establishing and designing regulation such as the government, and specifically in the case of OL – occupations, that may be considered as private commercial actors, and yet are distinguished from commercial firms. Seemingly, in applying the framework of VoC to OL, OL conforms with CME and likely to be more expansive as the state leans more towards a CME. It is a rigid institution, applied and administrated by the government, and it sets restrictions over the free market by determining who engage in what occupations and under what conditions. In addition, OL promotes stability in the labor market by enhancing the division between occupations and incentivizes keeping this division, in what demonstrates stability that characterizes CMEs. Nevertheless, we may also assume the contrary – that OL is a phenomenon that conforms more with LME. With accordance to LME, OL may be considered as a response to a lack in institutions that would otherwise govern the occupations by a consensual and less strict form. In CME on the other hand, there is no need in a top down regulation as OL, since alternative regulatory techniques, such as inspections by firms and extensive vocational training, control the occupational market. In addition, the application of OL can involve a political contestation and may require a strong private initiative. Such private initiative may more likely to occur in LME were the market is more segmented and adversarial. According to this puzzling application of VoC to OL we may assume that in general, institutional settings in both types of economy allow OL to evolve. Explanations then for the differences in OL between states, may be found by a more nuanced observation of the framework of VoC. A fundamental concept to VoC that may assist in understanding the place of OL in the institutional settings is institutional complementarity. It captures the configurations between two

7 or more institutions, so the presence and efficiency of one institution correlates with the presence and efficiency of other institutions (Hall & Soskice, 2001). Strictly, institutional complementarity does not imply causal relation between institutions, but in line with the new institutionalism, it aimed at discovering relations and linkages between institutions. Nevertheless, it may assist in discovering causality between institutions. The concept is fundamental to VoC, since institutional complementarities are assumed to what explain the configurations of institutions in a pattern (rather than regarding institution as a stand-alone). The configurations, presumably similar to capitalist economies, allow clustering and locating economies along the continuum. In applying the logic of institutional complementarity to OL, we should discern what political economy institutions presumably correlate with it as an institution, and in what configuration, i.e. in what course OL evolves according to the conditions of the correlating institutions. We suggest two core institutions in the system of political economy to complement with OL. One institution is vocational education, the national system that is responsible to teach, train, and certify in selected occupations. Vocational education systems are considered to be more developed in CME than LME (Thelen, 2001, 2004) – they are governmental controlled systems, and they are designed through coordination between the government, education institutes, employers, and professional associations. Vocational education may apply for a host of occupations, usually of technical or manual nature, that require skills but are not knowledge-occupations (Shavit & Muller, 2000). It may begin already in secondary education, but for most cases in developed countries it takes place as a post- secondary education. The studies themselves may vary in terms of length, and the division and ratio between learning, training and apprenticing. Yet for this study we focus mainly on the scope and position of the vocational system in the economy – the occupations it applies for, the share of the workforce that uses its services and its centrality in the labor market. Vocational education as an institution sets a qualification standard of practitioners and moreover provides state recognized certification for their qualification (Bills, 2003; Thelen, 2004). OL might not provide the education in itself, but it certainly set a qualification standard, and a license is certainly a state recognized certification for qualification. The similarity in these

8 functions of vocational education and OL makes them redundant for the same set of occupations, in what suggest complementarity. Moreover, vocational education system has a substantial capacity in dictating the supply and division of practitioners, that are trained under its scope, in the occupational market (ibid). OL has similar capacity, for practitioners in the licensed occupations. Also for this similarity, OL, is redundant to the extent the vocational education system is developed, and vice versa. Therefore, we hypothesize that (H1) the institutional factor that explain the differences in the degree of OL the UK, Israel, Germany and Sweden is the vocational education, so the more the vocational education is developed, the lower is the degree of OL. A second core institution that plausibly intertwine with OL is trade unions. Trade unions aim to promote workers' conditions, that are unionized mainly according to a sector, an industry or a company. Trade unions reinforce the affiliation between workers of the same organization, and they maintain a division in the labor market between employers and employees (Oswald, 1985). Labor markets, sectors, and occupations vary in the share of unionized workforce. Because unionization requires coordination between workers, unions serve as representative for all unionized workers, and because in many cases they require empowerment by the law, the institution is considered to be more prevalent and developed in CME than LME (Thelen, 2001, 2004). Trade unions are complementary to OL, because OL reinforces alternate cleavages in the labor market – among occupations, and between occupations to other actors as employers and applicants to the occupations. Furthermore, similar to trade unions, OL is also an institution that promotes the conditions of workers (Kleiner & Krueger, 2013), only different than unions, the workers are practitioners of occupations that enjoy social closure and a limitation on their competition and hence an increase in their wages. This overlap in functions, provides another explanation for complementarity between the institutions. Therefore, we hypothesize that (H2) the institutional factor that explain the differences in the degree of OL the UK, Israel, Germany and Sweden is the unionization of labor, so the more labor is unionized the lower is the degree of OL. Another core feature in economies according to VoC is privatization, which ostensibly is associated more with LME than CME. It intertwines with almost any institution, and makes a significant input to the configuration of institutional setting of an economy.

9

Literature of regulatory governance points out that "privatization is coupled with proliferation of regulatory institutions" (Levi-Faur, 2006[3]). As OL is an institution as such, that already suggests that suggests a positive correlation between the two. There are several plausible explanations for the correlation in this case. With privatization the government loses its control over the privatized sector, while OL may be an alternative method to control occupations and their practitioners in the sector. More particularly, when occupations are part of the public sector, the government can determine their qualification by internal, more flexible regulations. Once in the private sector, the government need a public more restrictive regulation to do so. In addition, practitioners that work in the public sector, obtain other methods than licensing to promote their conditions, as wage agreements (Franzese, 2001). The same logic applies also for other actors that has an interest in the market of the occupation – when the market is nationalized, they would be less dependent on the regulatory channels to promote their interest, and more on direct relation with the government. Therefore, we hypothesize that (H3) the institutional factor that explain the differences in the degree of OL the UK, Israel, Germany and Sweden is privatization, so the wider is the privatization, the higher is the degree of OL.

Bibliography Abbott, A. D. (1988). The system of professions: an essay on the division of expert labor. Chicago and London: The University of Chicago Press. Aguilera, R. V., Goyer, M., & Kabbach De Castro, L. R. (2013). Regulation and comparative corporate governance. In I. F. Mike Wright, Donald Siegel, Kevin Keasey (Ed.), The Oxford Handbook of Corporate Governance. Oxford University Press. Bills, D. B. (2003). Credentials, Signals, and Screens: Explaining the Relationship Between Schooling and Job Assignment. Review of Educational Research, 73(4), 441–449. Campbell, J. L., & Pedersen, O. K. (2007). The varieties of capitalism and hybrid success: Denmark in the global economy. Comparative Political Studies. Department of the Treasury Office of Economic Policy, Advisers, C. of E., & Department of Labor. (2015). Occupational Licensing: A Framework for Policymakers., (July), 24. Evans, P. B., Rueschemeyer, D., & Skocpol, T. (1985). Bringing the State Back In. New York: Cambridge University Press. Franzese, R. J. (2001). Institutional and sectoral interactions in monetary policy and wage/price- bargaining. In P. A. Hall & D. Soskice (Eds.), Varieties of capitalism (pp. 104–144). New York.

10

Friedman, L. M. (1965). Freedom of contract and occupational licensing 1890-1910: A legal and social study. California Law Review, 53(2), 487–534. Friedman, M. (1962). Capitalism and freedom. Chicago: University of Chicago Press. Hall, P. A., & Soskice, D. (2001). Varieties of Capitalism The institutional foundations of comparative advantage. International Relations. New York: Oxford University Press. Hancké, Bob, Martin Rhodes, and M. T. (2007). Beyond varieties of capitalism: Conflict, contradictions, and complementarities in the European economy. New York: Oxford University Press. Hope, D., & Soskice, D. (2016). Growth Models, Varieties of Capitalism, and Macroeconomics*. Politics and Society. Humphris, A., & Koumenta, M. (2015). The Effects of Occupational Licensing on , Skills and Quality: A Case Study of Two Occupations in the UK, (October), 1–50. Jackson, G., & Deeg, R. (2006). How Many Varieties of Capitalism? Comparing the Comparative Institutional Analyses of Capitalist Diversity. Kleiner, M. M. (2015). Guild-ridden labor markets: The curious case of occupational licensing. Kalamazoo, Michigan: W.E. Upjohn Institute for Employment Research. Kleiner, M. M., & Krueger, A. B. (2013). Analyzing the Extent and Influence of Occupational Licensing on the Labor Market, 31(2). Koumenta, M., & Pagliero, M. (2016). Measuring Prevalence and Labour Market Impacts of Occupational Regulation in the EU, (483), 1–142. Levi-faur, D. (2006). Varieties of Regulatory Capitalism : Sectors and Nations in the Making of a New Global Order, 19(3), 363–366. Moore, T. G. (1961). The Purpose of Licensing. The Journal of Law & , 4(2), 93–117. Ogus, A. (2004). Regulation: Legal Form and Economic Theory. International Review of , (2), 293–299. Osheroff, Yair. Explaining Occupational Licensing : Not simply rent seeking or quality assurance. Forthcoming Oswald, A. J. (1985). The Economic Theory of Trade Unions: An Introductory Survey. The Scandinavian Journal of Economics, 87(2), 160. https://doi.org/10.2307/3439820 Phillips, N. (2008). States and modes of regulation in the global political economy. In L. C. Martin Minogue (Ed.), Regulatory Governance in Developing Countries. Edward Elgar. eider, B. R. (2009). Hierarchical market economies and varieties of capitalism in Latin America. Journal of Latin American Studies. Shapiro, C. (1986). , Moral Hazard, and Occupational Licensing. The Review of Economic Studies, 53(5), 843–862. Shavit, Y., & Muller, W. (2000). Vocational secondary education. European Societies, 2(1), 29–50. Stigler, G. J. (1971). The Theory of Economic Regulation. The Bell Journal of Economics and Management Science, 2(1), 3–21. Tate, J. (n.d.). National varieties of standardization. In D. S. Peter A. Hall (Ed.), Varieties of capitalism:

11

The institutional foundations of comparative advantage. New York: Oxford University Press. Thatcher, M. (2002). Analysing regulatory reform in Europe. Journal of European Public Policy, 9(6), 859–872. Thelen, K. (2001). Varieties of Labor Politics in the Developed Democracies. In P. A. Hall & D. Soskice (Eds.), Varieties of Capitalism. Thelen, K. (2004). How institutions evolve: The political economy of skills in Germany, Britain, the United States, and Japan. Cambridge University Press. Zhou, X. (1993). Occupational Power, State Capacities, and the Diffusion of Licensing in the American States: 1890 to 1950. American Sociological Review, 58(4), 536–552.

12

Appendix Type: 1- core 2- assistance 3- paramedical 4- technical Occupation Type GB IL DE SE Dental hygienist 1 X X Dentist 1 X X X X Doctor of medicine 1 X X X X Midwife 1 X X X X Nurse 1 X X X X Paramedic 1 X X X Pharmacist 1 X X X Psychologist 1 X X X Veterinarian 1 X X X X Veterinary nurse 1 X X Psychotherapist 1 X X Ambulance profession 2 X Dental assistant / nurse 2 X Medic 2 X Pharmaceutical assistant 2 X X Radiotherapist / Radiographer 2 X X Chiropodist / Podiatrist 3 X X Chiropractor 3 X X Dental therapist 3 X Dietician 3 X X 3 X Optometrist 3 X X Osteopath 3 X Physiotherapist 3 X X Speech and language therapist 3 X Dental technician 4 X X X Hearing aid dispenser / Audiometric technician 4 X X Optician 4 X X Orthoptist 4 X Prosthesis / Orthoptist / Orthopedic technician / Surgical truss-maker 4 X TOTAL 24 20 12 9

13