The Compensation of Highly Paid Professionals: How Much Is Rent?

This paper examines the evidence that the pay gap [among highly-paid professionals] is due to protectionist measures that restrict competition. The most important of these protectionist measures are licensing practices that both unnecessarily restrict domestic competition and also prevent foreign-trained professionals from practicing their profession in the United States. There is a considerable amount of money at stake in excess pay for U.S. professionals. Higher pay for doctors alone costs close to $100 billion annually (more than 0.5 percent of GDP). Adding in the excess pay for other professionals could double this amount…The potential for reduced demand for physicians as a result of eliminating excessive licensing restrictions and increased foreign competition can largely eliminate the gap in pay between physicians in the United States and other wealthy countries, saving close to $100 billion annually…In total, the potential gain from eliminating barriers to competition for highly paid professionals in the United States is likely in the neighborhood of $200 billion a year, or more than 1.0 percent of GDP. This is a substantial cost to the rest of the country that increases the income of those at the top of the pay ladder.

Dean Baker

Center for Economic and Policy Research

February 22, 2016

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