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Does Occupational Licensing Represent Excessive Regulation?

By Jennifer Hunt·April 20
Rutgers University

The Issue:

The American labor market is generally considered lightly regulated but its share of workers in licensed occupations is similar to the highest shares among European countries. It might be possible to reduce consumer prices and increase labor market efficiency by pruning unnecessary licensing.

The Facts:

  • A licensed occupation is one for which the government — usually, the state government — establishes a set of mandatory qualifications.
  • The share of U.S. workers holding a license has risen from less than 5 percent in the early 1950s to around 22 percent in 2015, with two-thirds of the rise due to the extension of licensing to additional occupations (such as florists in Louisiana). The occupations that require licensing vary from state to state, as do the requirements for the same occupation: Iowa requires 490 days of study for cosmetologists while New York requires 233.
  • Licensing is meant to ensure consumers receive services that are safe in situations where they cannot assess service quality. But they can act as barriers to entry, reducing employment in an occupation, leading to higher wages, and raising prices for consumers.

What this Means:

Occupational licensing is mostly within the purview of states but the Federal government can also play a role. The Trump Administration could continue to fund efforts to bring states together to increase inter-state recognition of licenses. It could also urge states to limit licensing to occupations in which genuine health and safety issues exist; use cost-benefit analysis in determining whether an occupation should be licensed; and make greater use of voluntary certification instead of licensing.

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Income Differences in Education: the Gap Within the Gap

By Katherine Michelmore and Susan Dynarski·April 20
Syracuse University and University of Michigan

The Issue:

Students from poor families score much lower on academic tests than their better-off peers. This achievement gap is wider today than it was 25 years ago. But researchers and policymakers have been using a crude yardstick to measure economic disadvantage, making it more difficult to target resources to those who need them the most.

The Facts:

  • Student eligibility for free or reduced-price lunch is a widely used measure for poverty in schools, even though it offers a very broad brushstroke. Nearly half of all students nationwide are eligible for subsidized meals but only a quarter of U.S. children live in poverty.
  • Test scores vary widely within those who qualify for subsidized meals. While about half of 8th graders in Michigan are currently eligible for a subsidized meal, 14 percent were eligible for subsidized meals every year since kindergarten and they scored significantly lower than all the other groups.
  • Many federal, state, and local programs distribute money based on the share of a school's or a district's students eligible for subsidized meals.

What this Means:

Increasing inequality in academic achievement by income undermines education's potential to counter widening income disparity in the United States. It is critical that policymakers and educators identify the children who most need support in order to succeed in school. By taking into account the persistence of children’s economic disadvantage, we can better direct resources to the students and schools who need them most.

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Anti-Poverty Program at Stake in Battle Over 2018 Farm Bill

By William A. Masters·April 17
Friedman School of Nutrition & Department of Economics, Tufts University

The Issue:

The U.S. Farm Bill, which ties Congressional support for agricultural producers with nutritional programs for low-income households, is up for renewal in 2018. Programs are facing unprecedented pressure with calls for large cuts and restrictions. The Supplemental Nutrition Assistance Program (SNAP) constitutes the largest share of spending and provides a safety net that disproportionately helps children in poverty.

The Facts:

  • The current Farm Bill authorizes around $100 billion per year in Federal spending for agriculture, food and nutrition assistance.
  • About three quarters of current farm bill spending goes to nutrition assistance through SNAP. In 2014, SNAP benefits averaging about $3,000 per household went to over 22.5 million households, while farm payments went to a total of almost 746,000 farmers who received an average of about $18,000 each.
  • Changes in welfare programs for low-income people ended most cash assistance, leaving SNAP as one of America’s largest anti-poverty programs. In 2015, about half of all people in poverty and over 60 percent of all children in poverty received SNAP benefits, while under 20 percent received any kind of cash benefit (see chart).

What this Means:

Expiration of the current Farm Bill poses a major challenge for Congressional leaders, who face unprecedented pressure to cut or eliminate the basic safety nets it provides. New legislation will be shaped by a long and uncertain process, with high stakes for farmers and for low-income children whose parents rely on SNAP benefits to buy groceries and put food on the table.

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Leaning on The Fed

By Michael W. Klein·April 13
Fletcher School, Tufts University

The Issue:

The independence of the Federal Reserve helps to ensure that it can make politically difficult decisions that are in the long-run best interest of the economy. Vacancies and expiring terms at the leadership of the Fed make this a particularly vulnerable time for Fed independence.

The Facts:

  • Economies perform better under central banks that are more independent. To illustrate, among a group of advanced economies, average inflation is significantly lower in countries with more independent central banks (see chart).
  • The Federal Reserve aims to maintain low unemployment and keep prices stable. It sets interest rate policy and plays a role in regulating and supervising the financial system. Since the Fed's decisions impact the economy and, through this channel, the political climate, politicians may want to influence its decisions.
  • Economists debate whether monetary policy should be conducted based on rules or in a more discretionary manner. But there is agreement that politically-influenced policy would increase uncertainty, cause the economy to go through fits and starts, and in general be destabilizing and corrosive.

What this Means:

As a candidate, Donald Trump attacked the Federal Reserve and Chairwoman Janet Yellen whose current term expires in 2018. The Senate failed to confirm nominees to the Board of Governors of the Federal Reserve during the past few years, so now there are three vacancies on the seven-member board. If the President politicizes Fed appointments it could damage the central bank's independence and, in so doing, the performance of the U.S. economy.

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Is China a Non-Market Economy, and Why Does It Matter?

By Joel Trachtman·April 12
Fletcher School, Tufts University

The Issue:

The designation of China as a "non-market economy" under the World Trade Organization (WTO) allows its trading partners to subject it to more stringent anti-dumping duties if they determine China's exports are being sold at unfairly low prices. China's status as a non-market economy was part of its accession to the WTO in 2001 but this aspect expired in 2016 and is now subject of dispute.

The Facts:

  • International trade law allows countries to use special anti-dumping duties to protect their domestic industries from the impact of artificially cheap imports.
  • It is difficult to determine that a price is “artificially low” without a market benchmark, and the control exercised by the Chinese government over the Chinese economy suggests that domestic prices are not pervasively set by market forces.
  • For this reason, WTO law allows using third-country prices as a comparison to determine whether a non-market economy (NME) is dumping its goods in an importing country. This gives importing countries greater flexibility to use arbitrarily-selected high third country prices as a reference for determining dumping by exporters from NMEs than it does for exporters from market economies.

What this Means:

When China entered the WTO in 2001, it was expected that its economy would be further liberalized by now. Regardless of how this litigation turns out, and it is likely to drag on for years, this is an instance in which a special regime applied to China would continue to make sense. The treatment accorded China should be carefully designed to address the special nature of the Chinese economy, without further disadvantaging China.

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