🚫 AI, job licensing, and upward mobility: A Quick Q&A with … economist Vincent Geloso

'This is the story of bad policies. The crisis that some people perceive in income mobility in the United States is entirely a regulatory crisis that we've created'

Reduced income mobility has been a major concern for many economists and policymakers in the United States. And the emergence of advanced artificial intelligence has raised new worries about how automation and technology might affect the ability of workers to climb the ladder of success rather than being stuck within the income group they were born into.

According to Vincent Geloso, however, the issue of poor mobility is not the result of technological change. Rather, the problem lies in the artificial barriers we’ve set up in order to protect ourselves from the market. I asked Geloso a few quick questions about why automation gets a bad rap and why regulation is the true culprit of income immobility.

Geloso is an assistant professor of economics at George Mason University who specializes in economic history, specifically in the measurement of living standards past and present. He is a co-author of the recent paper “Income Mobility, Automation and Occupational Licensing.” The paper’s abstract:

Technological change has long been tied with distributional concerns due to displacement against certain skills on labor markets. Short-run dislocations could create scarring in the long-run. For example, shifts against less skilled workers with children could limit their ability to improve the inter-generational income mobility of their children. However, the existing literature rarely emphasizes the possibility that the ill-effects of technological change are conditional on government regulations that limit the ability of workers to rapidly adjust – thus creating the scarring. In this article, we document the importance of these regulations by focusing on changes in occupational licensing of low-income professions, exposure to industrial automation in the United States since the 1980s and inter-generational income mobility. We find that a significant share of the prediction of falling income mobility tied to automation are actually tied to changes in occupational licensing. Areas that experienced labor market deregulation and high exposure to automation suffered far less than areas that did not engage in deregulation.

In short, when machines replace human workers, it can hurt families' income and their children's future opportunities. But the negative effects aren't just about the technology itself. They're made much worse by strict job licensing requirements. In places where it was easier to switch careers (fewer licensing rules), families were better able to adapt to automation and maintain economic mobility. In places with lots of licensing requirements, families struggled more to adapt to automation.

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1/ What are the key drivers of changes in income mobility in recent decades?

It depends who you ask. So if you ask people like Raj Chetty and Matthew Jackson, they will emphasize the role of social network. Essentially, you want to think about social capital: How interconnected are people together. The idea is that if, for example, I'm born in a particularly well-to-do family, I get access to networks of people who are also well-to-do, also have opportunity, and so the network of existing people transfers status from generation to generation, which means that the more segregated networks are — the more inaccessible certain networks will be — the likelier it is that you'll find lesser income mobility across generations. People like Chetty and Jackson would probably not reject the importance of competitive markets, of open markets, of access to occupations, but they wouldn't rank it as high as what I think it ranks as.

This is where I have been in what is now five different papers, with two that are still in review process, where I argue that no, markets matter even more. It's not just that networks matter, markets matter maybe as much, if not more than the social network. It doesn't reject the importance of social network, that there is some degree of transmission or some up advantage people have, but we underestimate that the strength that markets have in generating upward mobility.

In the United States, the reality is we've created in last 50 years — I would say maybe even 60 — more and more barriers to accessing certain professions. So that would take the form of occupational licensing, there's a greater proportion of old jobs in the US that are now subjected to entry barriers, whereas they didn't in the past, and when they did, they didn't have that high of a degree of barriers. There are also other barriers that come in through product regulation, through high taxation, through barriers to entrepreneurship, and when you pile these together, the growing importance of regulation actually probably amplifies any of the things that people like Raj Chetty and Matthew Jackson would point out, and I would say that bad regulatory policy probably explains a larger share of the decline in income mobility that we're observing in the US.

2/ When I think of occupational licensing, the classic examples are like florists, or hairdressers, those are the ones that often get brought up when people talk about these kinds of regulations, but you mentioned a wider variety.

Can you give me some specific examples of ones which you find to be harmful, but perhaps don't immediately come to mind when people think about this topic?

I would think of anything that you would think of as a low- to middle-income occupation. I'm not thinking lawyers and doctors, I'm thinking cosmeticians, I am thinking interior decorators, I am thinking furniture designers, or refrigeration experts, I am thinking daycare activities regulation, I am thinking of barbers. These are not the things that people tend to associate with occupational licensing. If you ask people, “Name me the first two occupations that are licensed,” what they would think of is doctors and lawyers, where some prima facie case can be made for some form of licensing system, but they wouldn't think of the smaller, low-income occupations that people have in mind. These are the ones where there's been growth of regulatory barriers since the 1950s and ’60s.