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Home Publications Blogs Beat the Press Detroit's Problem is Doctors Get Protection and Autoworkers Don't

Detroit's Problem is Doctors Get Protection and Autoworkers Don't

Friday, 16 August 2013 05:06

It is standard practice in elite circles to blame U.S. workers for their lack of jobs and low wages. The problem is they lack the right skills to compete in the global economy. The NYT gave us another example of this complaint with Stephan Richter's column today.

While it would be desirable to have a better trained and educated workforce, the reason why our manufacturing workers lose out to international competition, while highly educated workers like doctors and lawyers don't, is that the latter are highly protected. By contrast, it has been explicit policy to put manufacturing workers in direct competition with the lowest paid workers in the developing world.

If we had free traders directing policy, our trade deals would have been as focused on removing the barriers that make it difficult for smart and ambituous kids in the developing world from becoming doctors, dentists, and lawyers in the United States. This would have driven down wages in these fields and led to enormous savings to consumers on health care, legal fees and other professional services. However trade policy in the United States has been dominated by protectionists who want to limit competition for the most highly paid workers, while using international competition to drive down the wages for those workers at the middle and bottom of the pay ladder. 


Comments (11)Add Comment
Why Isn't Stephan Richter Structurally Unemployed as a Writer?
written by Last Mover, August 16, 2013 6:39
The reason so many manufacturing-sector workers in the United States received such high pay at that time was not that they had exceptional skills or had received superior training; it was that the corporations for which they worked were unsurpassed in their dominance and generated huge revenues.

But that dominance was, to a considerable degree, a momentary quirk of history: the absence, in the wake of World War II, of any real competition from other nations. Once foreign competition was re-established, in Europe and Asia, only the superior skills of a nation’s workers and a focus on long-term workers’ training would allow a country to stay ahead.

You don't say, Stephan Richter. So it wasn't worker skills and productivity back in the day that created a successful middle class that earned its share of productivity gains.

No sireee. It was corporate largesse wasn't it, benevolent welfare dished out to low skill employees by monopolies shielded from global competition. In fact there was so much to go around the corporations bowed to the waist before demands made by the unions didn't they.

Then one day, out of the blue, after Japan rebuilt the infrastructure that was bombed out from underneath it, sheeezammmm! All those unskilled workers in America were caught flatfooted weren't they, standing around doodling on the production line wondering what hit them.

It had nothing to do with incompetent management did it. Nothing to do with well documented Peter Drucker style differences between Japan and America on how to run a factory did it.

In fact it was the same structural unemployment that plagues America today wasn't it. Workers with the wrong skills or no skills at all sitting around on their lazy asses refusing to get reducated and retrained, sucking up unemployment benefits. Just like those workers during the heyday of the middle class sucking up overpaid union wages from the teat of big corporate welfare before it finally fell before the gale winds of global competition.

Who do you think you are Stephan Richter, a doctor or lawyer writing an economic morality play that can't even keep the role of the protagonist separate from the antagonist? Only writers who don't face competition get away with that you know.
And the Proposed Immigration Bill Will Only Make it Worse...
written by Not My Real First Name, August 16, 2013 8:43

You forgot to mention how the proposed Senate immigration bill will make things worse for the American worker.

It proposes to bring in more workers in just those fields where the pay (in real terms) has been falling for decades, but not in the small number of fields where pay has been growing. Fields like investment banking, lobbying, corporate law, medicine.
Manufacturing has been on the decline since the 1950's?
written by Jennifer, August 16, 2013 5:13
That skills deteriorated is, to a considerable extent, the fault of the unions. Unfortunately, they shared the management class’s shortsighted focus on extracting the maximum amount of compensation from companies, even in the face of the underlying businesses’ failing strength.

The idea that manufacturing is suffering because of lack of educated workers, when the "unskilled" retail sector is full of them, is such nonsense I can't even . . .
Also the idea that unions have extracted "maximum" compensation is ridiculous as well. What unions there are left in the manufacturing sector have done nothing but give, in the attitude of "shared sacrifice" while CEO salaries have ballooned.
written by pete, August 17, 2013 5:17
If we lower our medical profession salaries by letting in nurses and doctors from the UK and Germany, in addition to Nigeria and the Phillipines, say, somehow this will make our autoworkers better off? I would say that professional salaries are much much closer together globally than manufacturing salaries. For example, professionals are much more likely to get visas. Pretty hard for Detroit to sponsor an immigrant to build cars...Easy to say a university or hospital needs a professor or a doctor. For example, university salaries at the best schools around the world have risen to U.S. levels. The plain fact is that capital is scarce on a global level, as trade has opened up. Global GDP will continue to soar as Africa gets it together, with China's help. There are going to be disruptions. The slow death of Detroit should have been hastened back in the 1970s. Instead these efforts to protect the auto companies have simply delayed the inevitable, and have been very costly. Mercantilism is a very bad economic policy.
strawman but right
written by tew, August 17, 2013 12:54
The leading sentence serves no purpose except to create a straw man and an elevated emotional state so that the reader is more easily swayed by the remainder of the article. It's transparent manipulation. But, hey, it works.

Anyway, I agree with the article's main point.

Most law makers are... lawyers. They see their profession as "above the fray" and have friends and financial interests in protecting that profession from competition. The doctors union is up there with the teachers union in terms of protection from competition. Very effective.
Response to "huh" from Pete
written by Not My Real Fake name, August 17, 2013 3:38

Regarding your question:

If we lower our medical profession salaries by letting in nurses and doctors from the UK and Germany, in addition to Nigeria and the Philippines, say, somehow this will make our autoworkers better off?”

Cheaper doctors will absolutely help Detroit’s remaining autoworkers. T. R. Reid’s work shows that Physician salaries in the US are completely out of whack as compared to any other county on the planet. As of five years ago there was no county, other than the US, where the average annual Physician salary was more than $100K USD.

In my field (software application development – aka software publishing) over 75% of the workers in the US are foreign nationals working on “guest-worker” visas. Many are here on the “L” visa and so pay no Social Security, Medicare or state disability payroll taxes.

Obviously these imported workers are cheaper to hire, and they obviously reduce my ability to negotiate for higher pay in my field. This is why all the peer reviewed studies show that there is no shortage of STEM workers in the US and that salaries in the information technology (IT) field have fallen in real terms since the dot-com bust in 2000.

My second largest expense, after my mortgage, is the dental and orthodontia services consumed by my minivan full of teenagers. However for my coworkers, all of whom are too young to have teenagers, their dental costs are miniscule. This is because their employer flies them back to their low-cost home country once per year to get their visa stamped. This is when they schedule their dental work, and any other major expenditure, such as a wedding.

If I were able to purchase dental and healthcare services at the same price as my coworker in the cubicle to the left of me, to the right of me, and in front of me I would save thousands of dollars a year. Enough even to consider finally buying a new car, to replace the aging heap I drive now.

There have been several articles in the press of my coworker’s low-cost country about the need for the US congress pass a law to allow Medicare reimbursements to be paid to healthcare providers outside of the US, and how this would sole the problem of the growing US national debt in the stroke of a pen. It would also end forever all the talk about the need to cut Social Security - oops I should have said “reform Entitlements”.

Somehow however, this particular bill never seems to gather the support of a “gang of one”, let alone a “gang of eight”.
Toyota Corolla vs. Geo Prism
written by Joe T., August 17, 2013 3:42
Last Mover said:

"It had nothing to do with incompetent management did it. Nothing to do with well documented Peter Drucker style differences between Japan and America on how to run a factory did it."

I remember back in those days when a Geo Prism was a rebadged Toyota Corolla, with one difference: the Geo was made in the Caifornia NUMI plant, while the Toyota was made in Japan. so about five years after introduction of the Prism, I checked Consumer Reports reliability it turned out that the ratings looked identical (maybe a slight edge to the Geo). So much for blaming the American worker.
TO: Not my real fake namer
written by pete, August 17, 2013 9:03
There is substantial high quality medical tourism in Bangkok where I am presently. It could be easy to have scheduled medical/dental flights. People come here from countries with great health care for all kinds of procedures, typically where the queue is long or the procedure is disallowed due to rationing. I suspect that this will continue to grow, unless extensive visas are allowed for nurses and doctors (I don't know why the nurse salaries are not considered by many to be a problem. Much of our medical care requires many nurses, I would think their combined share of health care costs to be quite high, far above doctor share for many procedures. The last study I saw that compared medical profession salaries showed that across the board, yes including nurses, the U.S. was at the top.)
What about more jobs for smart and ambitious (but disadvantaged) kids in the US?
written by Rachel, August 18, 2013 7:32

In recent years we have been importing up to 30% of our doctors from overseas. And yet, last time I checked, we still have fewer doctors, and fewer doctor visits per year per 100,000 population, than any other developed country.

In other words, we are simply not training enough doctors. We allow the medical profession to restrict access to medical schools and residencies, so as to transfer transfer incomes from the middle class upwards.

Of course there are other factors leading to the overpricing of doctors, and in some places nurses. Noticeably, there is the problem of market power of hospitals.

I was horrified recently to hear local business investors celebrating the hospitals buying up medical practices in the SF Bay Area. Big profits in this, claimed the investors. Sure. But bad for everyone else. And just importing doctors to work in hospitals with monopoly power isn't going to help. We need to get people used to the idea that doctors and in some cases nurses benefit from restricted competition.
Another Question on Competition
written by Bobby Goren, August 18, 2013 8:28
Most of the competition for higher wage service labor like doctors is a function of immigration policy which has its own, fairly unique dynamic. Further the headcount numbers are pretty big (there are almost 1 million practicing MDs in the US). A smaller, more interesting group is foreign-born CEOs.

The number of foreign-born US CEOs has increased significantly suggesting that top leadership of multi-national US-based companies is open to anyone in the world. One would think that the increased availability of such "rare" talent would decrease its cost. Instead CEO pay has continued to increase without so much as a speedbump. Why?

THAT'S an analysis I'd like to see.
Rachel...pretty close to the answer
written by pete, August 18, 2013 9:15
We tell our high schoolers that if they do not go to college they are failures. This is a disastrous policy. In Europe and elsewhere, higher eduction is much more limited, and career training begins earlier. Thus, a 16 year old could be channeled into a nursing program, as some are now in Texas. Instead of wasting the next 4 or 5 years trying different things, a student could be working in a hospital at 19. This is a win win, driving down the cost of health care AND employing kids at earlier ages. Ooops keep it a secret from the SEIU.

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.