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.
Center for Economic and Policy Research
February 22, 2016