Britain’s restrictive planning system and occupational
licensing rules hurt the worst-off.
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House prices could be over one-third lower without
restrictive planning rules.
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Almost 1-in-5 British workers are required to get a licence
to do a job, known as occupational licensing. This is up from
14% in 2008 and higher than in countries with high income
mobility, such as Denmark (14%), Sweden (15%) and Finland
(17%).
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UK income mobility is “not exceptional in any way – neither
good nor bad” in international comparisons but could be
improved through economic liberalisation.
Britain’s poorest are being held back by restrictive planning
laws and labour market regulations, according to new research from the free
market think tank the Institute of Economic Affairs. Income
mobility in Britain has fallen since the 1970s at the same time
as housing and labour regulations have increased.
The authors, academics Dr Justin Callais and Dr Vincent Geloso,
say that the inability to build homes near better paying jobs
prevents social mobility. They cite US evidence that shows
households could be hundreds of thousands of pounds better off
over their lifetimes if they could move to areas that offer more
job opportunities.
Planning restrictions disproportionately benefit existing wealthy
homeowners, who can pass the gains of high house prices down to
the next generation. These restrictions have also increased
housing costs significantly. They cite research estimating that
in the absence of regulatory barriers, house prices in the 2000s
would have been 35% lower than they actually were*.
The authors say that Britain's least well-off are held back by
cumbersome requirements to get a licence for a growing number of
jobs. They calculate that if Britain were to bring workplace
occupational licensing regulation down to Danish levels, it could
boost income mobility by up to 1.6%. Returning UK labour market
regulations to 1990s levels, which would mean halving the number
of occupations that require a licence, could boost income
mobility by up to 3.1%.
The paper rejects the idea that increased government spending on
welfare and education is the best way to improve social mobility.
They highlight that more spending means higher taxation and lower
growth, entrepreneurship, and opportunity. Instead, Callais and
Geloso demonstrate that removing legal hurdles to work is the
most effective way to help the worst off in society.
The authors cite extensive evidence demonstrating a strong link
between income mobility and economic freedom. “Limited business
and land-use regulation, more flexible labour markets, fewer
barriers to business formation, and more open trade can do more
to boost income mobility than is commonly appreciated,” Callais
and Geloso write.
Justin Callais, paper co-author and Assistant Professor
of Economics and Finance, University of Louisiana at Lafayette,
said:
“By focusing solely on inequality as the main cause of income
mobility, we are missing out on an even more important factor:
economic freedom. Economic freedom empowers individuals to excel
in their unique strengths, unlocking a vast array of pathways to
prosperity.
“Economic freedom has far fewer drawbacks than other proposed
policies like tax and redistribution, which lowers the returns to
productive activity. The British government would be wise to
consider robust changes to its policies on occupational licensing
and housing regulations in order to tackle income mobility.”
ENDS
Notes to Editors
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*Hilber, C. A., & Vermeulen, W. (2016) The impact of
supply constraints on house prices in England. The Economic
Journal, 126(591), 358-405.
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Absolute income mobility refers to increased living standards
throughout a person’s lifetime. Relative or intergenerational
income mobility is the difference between a person’s income
and others (for example, their parents).
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Economic freedom refers to limited government and regulation,
safe and secure property rights, open trade and sound money.
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Callais and Geloso have established a robust positive
correlation between relative income mobility and economic
freedom measures:
