Hutchins Roundup: Occupational licensing, irrational annuity decisions, and more

Vivien Lee and
Vivien Lee Senior Research Assistant - Hutchins Center on Fiscal & Monetary Policy, The Brookings Institution
Louise Sheiner
Sheiner Headshot Square
Louise Sheiner The Robert S. Kerr Senior Fellow - Economic Studies, Policy Director - The Hutchins Center on Fiscal and Monetary Policy

December 14, 2017

Studies in this week’s Hutchins Roundup find that occupational licensing partially explains the declining trend in interstate migration, complexity surrounding annuity decisions leads to less rational decision-making, and more.

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Occupational licensing partially explains the declining trend in interstate migration

Occupational licensing may protect consumers from harm by ensuring that all service providers have attained a minimum qualification level, but state-specific licenses make it harder for workers to move across state lines. Using information from 2005-2015, Janna Johnson and Morris Kleiner of the University of Minnesota compare migration patterns of occupations for which there is a national licensing standard, for which there are state-specific licensing standards, and for which there is no licensing requirement. They find that workers in occupations with state-specific licenses are 36 percent less likely to move across states than workers in occupations without licensing requirements, but workers in occupations with a national licensing standard do not exhibit lower interstate migration rates. The increase in state-specific occupational licensing can partially explain the declining trend in interstate migration in the U.S., they conclude.

Complexity surrounding annuity decisions leads to less rational decision-making

Annuities allow people to ensure they will have income in retirement even if they live to be very old yet few people buy them. Jeffrey Brown of the University of Illinois and co-authors examine whether behavioral factors—such as the difficulty people have in valuing them—impede people’s annuitization choices. They conduct an experiment with 4,000 adults in the U.S in which they ask participants a number of questions about the tradeoffs they would make between lump sum payments and a lifetime of monthly benefits. They find that increasing the complexity of the annuity choice reduces respondents’ ability to value the annuity, but inducing respondents to think about the consequences of running out of assets in retirement improves their ability to appropriately value annuities.

Increased use of primary care does not reduce health spending in the short run

Conventional wisdom suggests that increased use of primary care can lower overall health spending by decreasing emergency department use and treating ailments before they become serious. Cathy Bradley of the University of Colorado-Denver, David Neumark of the University of California, Irvine, and Lauryn Saxe Walker of Virginia Commonwealth University use a randomized controlled trial to assess this hypothesis. In particular, they offered small cash incentives ($25 or $50) to encourage low-income, uninsured adults to establish relationships with primary care providers, and then examined how those incentives affected health spending and the type of care people received over the next 12 months. They found that adults who received the incentives used primary care and other outpatient services more often and the emergency room less, but all of this did not reduce overall health-care spending. They authors note, however, that longer-term evidence is needed to assess whether use of primary care can improve health, which could eventually lead to a reduction in health spending.

Chart of the week: There’s approximately one job opening for every unemployed American

Chart 12.11.2017

Quote of the week:

“At the moment, the U.S. economy is performing well. The growth that we’re seeing, it’s not based on, for example, an unsustainable buildup of debt, as we had in the run-up to the financial crisis. The global economy is doing well. We’re in a synchronized expansion. This is the first time in many years that we’ve seen this. Inflation around the world is generally low. So I think the risks are balanced, and there’s less to lose sleep about now than has been true for quite some time, so I feel good about the economic outlook,” says Fed Chair Janet Yellen.

“I feel good that the labor market is in a very much stronger place than it was eight years ago… I think the financial system is on much sounder footing, and that we have done a great deal to put in place greater capital, liquidity, and so forth that make it less crisis-prone, and that has been an important objective. What’s on my undone list, you ask? We have a 2 percent symmetric inflation objective, and for a number of years now, inflation has been running under 2 percent, and I consider it an important priority to make sure that inflation doesn’t chronically undershoot our two percent objective….Most of my colleagues and I do believe that it’s being held down by transitory factors, but there’s work undone there in the sense we need to see it move up in line with our objective.”