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Why Don’t We Have Free Trade for Highly Paid Professionals in the US?

Most educated people like to think of themselves as supporters of free trade. After all, everyone who has been through Economics 101 knows that tariffs and other trade barriers slow growth and encourage waste and corruption. Therefore, we should all want to see as few barriers as possible obstructing trade.

While there are some issues that make the story a bit more complicated than the Econ 101 version, as a general rule we will benefit from having lower barriers to trade. This fact should cause all right-thinking people to be very upset about the protectionist barriers that artificially inflate the earnings of doctors in the United States.

Most people are probably not aware of the extraordinary level of protectionism that benefits doctors and, to a lesser extent, other highly paid professionals in our own country. A long list of trade agreements over the last 60 years has reduced or eliminated most of the tariffs and trade barriers on manufactured goods. This has led to a surge in imports, which has had major consequences for the U.S. labor market. But there has been no comparable effort to reduce the barriers that keep foreign professionals from working in the United States.

Under the current regulatory structure, foreign-trained doctors generally have to complete a U.S. residency program to practice medicine in the United States. This applies even to doctors with many years of experience, including those in countries that have high quality health care systems, such as Germany, France and the Netherlands.

This is not a question of whether we need regulations to ensure that the people who practice medicine in the United States are competent. Of course we do. The question is whether the only way a person can be a competent doctor is by passing a medical residency program in the United States. That requirement looks much more like old-fashioned protectionism than a rule ensuring the quality of the medical care we receive.

And we pay a huge price for this protectionism. Our doctors earn more than $250,000 a year on average, twice as much as their counterparts in other wealthy countries. (Pay for other workers is comparable to pay in the U.S., and sometimes higher in countries like Germany and Denmark.) Doctors in highly paid specialties, like cardiology, earn on average more than $400,000 a year.

This extra pay costs the country roughly $100 billion annually in higher medical expenses, a bit more than $700 per family. In addition, we get exactly the sort of abuses that would be expected when we allow a profession to restrict entry. We use specialists twice as frequently as people in other countries. This means that specialists in the United States are diagnosing and treating conditions handled by general practitioners in places like Germany and the Netherlands. And in most cases, the outcomes in these other countries are equally good.

Our doctors also try to prevent nurse practitioners and other less highly paid professionals from performing tasks for which they are perfectly competent, like prescribing drugs. The idea is to reserve as much business as possible for themselves. In addition, we get a bloated system of medical education which ends up being incredibly expensive. It makes sense for a student to incur large debt given what doctors earn, but it would be much better to have lower paid doctors and affordable medical school. The high cost of medical school can be a major barrier to students from working class or poor backgrounds who may be reluctant to take the risk associated with medical school debt, even if they are able to arrange the loans and financial aid to cover the cost.

If our trade deals were actually about free trade, we would have been working to reduce or eliminate the barriers that make it difficult for doctors and other foreign-trained professionals from practicing in the United States. While ensuring quality in these professions is important, there surely are ways to guarantee competence that don’t discriminate to the same extent as our current regulations.

The sort of issues posed by ensuring professional standards is not qualitatively different from the issues that arise in other areas. We want to benefit from being able to import cheaper fruit and vegetables or fish from other countries. But we also have to make sure that these products are safe for consumers in the United States. This requires inspection systems that guarantee these products will meet U.S. standards. The same logic applies to the safety and quality standards we impose on imported cars and a wide range of other consumer products.

Developing professional standards that ensure competence without discriminating against foreign professionals should not be beyond the capabilities of our trade negotiators. And it would lead to enormous economic gains for the country, disproportionately benefiting people at the middle and the bottom rather than those at the top.

There are two other points worth making about removing restrictions on foreign professionals working in the United States. First, a greater inflow of foreign professionals would have little impact on overall immigration. The net immigration inflow to the United States is currently around 1.2 million a year. If over the next decade, we increased the inflow of foreign doctors by an amount equal to two normal months of net inflow, it would be sufficient to transform the market for doctors in the United States. It would take smaller inflows to have a major impact on pay in most other professions.

The other point is that we should want to make sure that developing countries didn’t suffer from a “brain drain” by having their professionals leave the country. It would be a relatively straightforward matter to design a system of compensation whereby the earnings of their expatriate professionals is taxed and then paid to their country of origin. For example, the income tax that a Nigerian doctor would otherwise pay to the U.S. government could instead be sent to the Nigerian government. This could allow Nigeria to train two or three doctors for every doctor that went to the United States, thereby allowing Nigeria to benefit as well.

In short, we can have free trade in the highly paid professions. The potential benefits for the economy would be enormous. And unlike much of the gains from the current pattern of trade, these benefits would be broadly shared. We just have to overcome the protectionist inclinations of our politicians and trade negotiators.

This column originally appeared on the PBS Newshour.

More articles by:

Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC. 

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