Reference no: EM133083640

A basic examination of the national costs of licensing could be developed as follows, yielding these numbers: Suppose that the entire 15 percent wage premium for licensing mentioned in the text is from market power (as opposed to greater productivity from enhanced human capital), and further assume that labor supply is perfectly elastic and the labor demand elasticity is 0.5 (Hamermesh 1993). The calculation is that approximately 38 million licensed workers in the United States in 2010 (about 29 percent of the eligible workforce) multiplied by the .15 wage premium multiplied by the elasticity of 0.5 results in a loss of 2.85 million jobs. Furthermore, the average annual earnings of $41,000 / 1.15 = $35, 652 if there is no wage premium for licensing.

Therefore, $41,000 - $35,652 = $5,348 is the economic rent for a licensed worker. Consequently, licensing results in an annual cost to consumers of $5,348 x 38 million which is approximately $203 billion.

Above is an example of how to do the equation for the below questions- I cant figure out the percentage to be able to answer the question-

Question:

As a policy analyst for the Congressional Budget Office, you have been asked to estimate the potential costs of occupational licensing to the U.S. economy. Using demand analysis, a basic examination of the national costs of licensing could be developed as follows: Suppose that the entire 10 percent wage premium is from market power (as opposed to greater productivity from enhanced human capital), and further assume that labor supply is perfectly elastic and the labor demand elasticity is 0.5. Hypothetically, assume that the Census data suggests that there are approximately 68 million licensed workers in the U.S. Also assume that the average earning is $50,000. Calculate the potential job loss and the annual cost to consumers as a consequence of occupational licensing.