The Supply-Side Effects of Occupational Licensing Requirements

Chirine Mouharam explores evidence from the teacher labor market to examine the effects of occupational licensing requirements in her senior thesis.


Abstract

This paper examines the supply-side effects of increasing licensing requirements in the teacher labor market. I exploit within-state variation in subject test requirements over 2002-2015 and use the number of initial teacher licenses issued as a proxy for new teacher supply. I find that more stringent licensing requirements – in the form of subject test requirements – significantly reduce the supply of new teachers by 22% relative to the mean. I then investigate the mechanism by which subject test requirements affect new teacher supply, suggesting more stringent licensing requirements are associated with a decrease in the number of teacher preparation program completers and have no significant effect on the pass rate on required exams. Furthermore, my results suggest that subject test requirements disproportionately deter individuals from entering the teaching profession through the alternative route compared to the traditional route, and I find no evidence of a wage premium associated with subject test requirements. Overall, my results are consistent with the view that testing has acted as a barrier to entry.


I. Introduction


Occupational licensing laws, which require workers to obtain occupation-specific licenses in order to practice legally, have grown substantially more prevalent in the United States over the past three decades. The percentage of the American workforce subject to occupational licensing grew from around 5 percent in the 1970s to about 29 percent in 2008 (Kleiner & Krueger, 2013). A common justification for occupational licensing requirements argues that licensing decreases information asymmetry between consumers and suppliers, serving as a minimum guarantee of a service’s quality or safety (Leland, 1979; Shapiro, 1986). Opponents, however, emphasize supply-side effects: licensing increases the barriers to entering the labor market, drives away qualified individuals, impedes competition and raises prices faced by consumers (Ballou & Podgursky, 1998; Kleiner, 1990; Peltzman, 1976).


In this paper, I explore the supply-side effects of increasing licensing requirements for teachers. The teaching profession is one of the earliest-licensed occupations. States began to require prospective public-school teachers to pass competency tests in the 1960s (Angrist & Guryan, 2008). Although many states have required prospective teachers to pass competency tests since the mid-twentieth century, the stringency of those requirements has increased over the past few decades. Between 1983 and 2010, the percentage of states requiring some type of certification test increased from about 20% in 1983 to over 90% in 2010 (Larsen, 2015). Certification tests for teachers fall into three categories: basic skill tests, which assess reading, writing and general mathematics; professional knowledge tests, which assess pedagogical skills; and subject matter tests, which assess knowledge of a specific subject such as middle school social studies or high school physics. While the intent of these certification test requirements is to ensure that teachers meet a minimum quality standard, numerous empirical studies have found that certification tests do not significantly affect teaching quality (Angrist & Guryan 2004, 2008; Hanushek & Pace, 1995; Goldhaber & Brewer, 2000). On the other hand, additional testing and other certification requirements may deter qualified individuals with attractive outside options from entering the teaching profession if these more stringent requirements are too costly.


The teacher labor market provides a suitable setting for studying the supply-side effects of more stringent licensing requirements for multiple reasons. First, as described in more detail in Section II, teacher licensing requirements have changed in many states in recent years, creating variation that makes it possible to study their effects. For example, several states, such as Iowa, Michigan, and Wisconsin have recently relaxed certification test requirements in order to attract new teachers (DeGrow, 2018; National Council of Teachers of English, 2017; Pfannenstiel, 2018). This suggests that policymakers are concerned that stringent licensing requirements deter prospective teachers from entering the occupation.

Second, certification test laws are easier to quantify than other requirements, such as coursework or degree requirements, which have a greater range of differentiation (Larsen, 2015).


Third, the teaching occupation is sufficiently large to permit more powerful statistical tests. To my knowledge, this paper is the first study to take advantage of this by examining the effect of more stringent certification test requirements on the supply of new teachers. Previous literature on teacher licensure requirements has largely focused on the quality and wage effects of more stringent testing requirements, overlooking the supply side. Specifically, the wage literature finds that certification test requirements are associated with a wage premium (Angrist & Guryan, 2008). While the wage premium is assumed to be caused by a shift in supply, the wage literature does not formally test that hypothesis. On the other hand, the quality literature looks at the effect of licensing test requirements on the quality of teachers but does not examine whether licensure exams affect schools’ ability to fill new teacher vacancies (Angrist & Guryan, 2004; Larsen, 2015; Goldhaber & Brewer, 2000). This paper attempts to address this gap in the existing literature by answering the following question: What are the effects of more stringent licensing requirements on the supply of new teachers?


As further discussed in Section II, there was substantial variation in subject test requirements for teachers during my 2002-2015 sample period, while other kinds of test requirements were relatively stable. As a proxy for new teacher supply, I use state-level data on the number of initial teacher licenses issued from the U.S. Department of Education Office of Title II. I regress this outcome on a dummy variable encoding the presence of subject test requirements using a fixed-effects model that exploits within-state variation in subject test law implementation over the period 2002-2015. In addition, I seek to identify possible mechanisms by which subject test laws affect new teacher supply by testing two possible hypotheses. The first is that subject test requirements affect new teacher supply by decreasing the number of prospective teachers who pass all required exams. The second is that subject test requirements reduce the supply of new teachers by deterring individuals from enrolling in teacher preparation programs and entering the profession. Notably, prospective teachers can enroll in either a traditional teacher preparation program or an alternative preparation program. I therefore further explore whether subject test laws disproportionately deter people from completing the alternative route program, since those people hold non-education degrees and thus have more alternative employment options. Finally, this paper briefly considers the consequences of additional certification test laws on teacher wages.


Consistent with the view that more stringent licensing requirements increase the barriers to entry into an occupation, my results suggest that subject test requirements reduce the number of initial teacher licenses issued by 22% relative to the sample mean. Specifically, the results from my mechanism analysis suggest that more stringent licensing requirements reduce the number of teacher preparation program completers, which suggests deterrence from the occupation, especially from those entering the teaching profession through the alternative route. Finally, I find no evidence that subject test laws create a wage premium for teachers.


The paper is organized as follows. Section II provides a background on various forms of teacher testing and motivation for the research question; Section III presents a review of the literature on the supply-side effects of occupational licensing; Section IV describes the data used in my analysis; Section V outlines the identification strategy; Section VI presents the results and robustness checks; Section VII provides an analysis on the mechanism by which testing impacts the number of licenses issued; Section VIII extends the analysis by briefly looking at the effect of subject test laws on wages; Section IX presents a discussion of my findings.

II. Background and Motivation


Numerous reports released by the U.S. Department of Education have highlighted the importance of teacher quality. As President George W. Bush said at the 2006 State of the Union Address, “If we ensure that America’s children succeed in life, they will ensure that America succeeds in the world” (U.S. Department of Education, 2006). Over the past decade, federal and state governments have implemented a number of policies to ensure that teachers meet certain quality standards (U.S. Department of Education, 2006). These policies have included increased accountability of teacher preparation programs, tenure reforms, and increased use of teacher certification testing to demonstrate subject matter competency (U.S. Department of Education, 2010).


Currently, prospective candidates can receive initial teacher certification through two separate routes: the traditional route or the alternative route. The traditional teacher preparation program generally includes a four-year undergraduate degree in education. The alternative route to teacher certification, on the other hand, includes candidates who did not receive an undergraduate degree in education. Instead, these individuals are required to complete an alternative route preparation program that focuses on pedagogy instruction. While the requirements for initial certification vary across states, states generally do not differ in their required assessments for traditional and alternative route program completers (U.S. Department of Education, 2006).


States began to require tests for teacher licensure in the 1960s (Angrist & Guryan, 2008). Certification tests for teachers fall into three categories: basic skill tests, which assess reading, writing and general mathematics; professional knowledge tests, which assess pedagogical skills; and subject matter tests, which assess knowledge of a specific subject such as middle school social studies or high school physics. As a response to reports such as “A Nation at Risk” (Gardner, 1983) which advocated for educational policy reforms that increased teacher quality, the use of certification tests became more widespread (Larsen, 2015). The No Child Left Behind Act of 2001 further increased the prevalence of teacher testing as a signal for quality and content mastery. While the adoption of these testing requirements varies widely across states, the intuition behind required certification exams is the same: ensuring that teachers meet a minimum quality standard.


In recent years, improving the quality of teachers has turned out to be a challenge. Specifically, high public-school enrollment rates, increased teacher attrition and the retirement of baby boomers from the workforce have made high-quality teachers scarce (Boyd, Goldhaber, Lankford, & Wyckoff, 2007). At the same time, widespread media reports on state public school teacher shortages have made headlines (The Hamilton Project, 2017). A report from the Education Commission of the States highlights that teacher licensure requirements can affect a state’s ability to attract new teachers (Education Commission of the States, 2016).


States have approached the problems of teacher shortages and teacher quality in different ways. While some states have increased the stringency of certification requirements to ensure high-quality teachers, a number of states, such as Wisconsin, Iowa and Michigan, have relaxed certification test requirements as an attempt to deal with shortages and attract more teachers (Boyd et al., 2007; DeGrow, 2018; National Council of Teachers of English, 2017; Pfannenstiel, 2018).