Academic journal article The European Journal of Comparative Economics

Occupational Regulation in the European Legal Market

Academic journal article The European Journal of Comparative Economics

Occupational Regulation in the European Legal Market

Article excerpt

1. Introduction

Occupational regulation is an increasingly important feature of modern labor markets (Kleiner 2006). The main rationale for occupational regulation is that it can decrease consumer uncertainty regarding the quality of professionals and provide incentives for investing in occupation-specific human capital. Occupational regulation takes three broad forms: registration, certification and licensing. Registration requires simply that the names of professionals operating in a professional market be recorded and accessible to the public. Certification implies that an independent agency (public or private), typically nonprofit, certifies the quality of professionals through examinations. Individuals without certification can still practice the profession, but only certified practitioners are allowed to use a particular title (e.g., "certified lawyer"), thus distinguishing them from uncertified practitioners. The strictest form of regulation is licensing, which requires all practitioners to have obtained the appropriate educational requirements and/or to have passed a specific licensing examination.

The case for occupational regulation is based on the existence of asymmetric information between professionals and consumers. When asymmetric information is sufficiently large, occupational regulation may be efficient: a social planner may design policies to increase the amount of information available to the public and/or to screen potential entrants, thus guaranteeing a minimum quality standard (Akerlof 1970, Leland 1979, Shapiro 1986). Because of asymmetric information, the government typically cannot directly perform the screening of potential entrants and delegates the enforcement of minimum standards to professional associations, educational institutions, or specific government agencies. 3

However, occupational licensing may bring costs as well as benefits. A second view of licensing is that regulation is acquired by the industry and is designed and operated primarily for its benefit. This view can be traced back to Adam Smith (1776, I.x.c.5) and has been later developed by Stigler (1971). Based on this view early opponents of occupational licensing argued that certification could reduce asymmetric information without imposing the same cost on consumers (Friedman 1962). It is argued that certification (which restricts the use of professional title) provides consumers with information without restricting the supply of practitioners in a field.

Despite its commitment to achieving a common labor market, the European Union is still characterized by a highly fragmented legal market. The first objective of this paper is to describe entry requirements for admission to the legal profession. There are three main sources of heterogeneity across member states: a) member states differ in their basic approach to regulation: of the 27 member states, four require certification, whereas the others require licensing. Registration is not currently in use. b) states differ in the requirements to become a lawyer (certified or licensed, depending on the type of regulation). c) states differ in their requirements for the transfer of lawyers (and many other professions) across member states. This is still true in spite of a number of attempts to harmonize procedures for mutual recognition of professional titles, for example the Directive 2005/36/EC on the recognition of professional qualifications, which came into force in 2007 and it has since been amended several times, and the creation of a regulated professions database (4).

A second objective of this paper is to shed light on the different roles that educational institutions, professional associations and government agencies play in implementing occupational regulation. Occupational regulation can be implemented through educational standards, professional exams, or both. When involved in occupational regulation, educational institutions typically certify the competence of candidates attaining minimum educational standards, such as a law school degree, granting them use of a title or access to a profession. …

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