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Home Publications Blogs Beat the Press The Loss of Middle Class Jobs Is By Design

The Loss of Middle Class Jobs Is By Design

Tuesday, 20 September 2011 08:53

Marketplace radio had author Don Peck on this morning to tell listeners that middle class jobs are disappearing because of globalization and automation. This is not true.

The reason why factory workers lose their jobs to people in developing countries rather than doctors and lawyers is that we designed trade rules to make our factory workers compete with low-paid workers in China, Mexico and other developing countries. We largely protect our doctors and lawyers from the same sort of competition.

If we had designed our trade policy to put our highly educated professionals in direct competition with their counterparts in the developing world, they would be no more successful than our factory workers. The difference is that professionals have enough political power to mostly preserve the barriers that protect them from such competition.

The over-valued dollar also worsens the situation for U.S. factory workers. If the dollar adjusted to a level that allowed for balanced trade we would have more than 4 million additional jobs in manufacturing.

Comments (16)Add Comment
Exactly right
written by Sean, September 20, 2011 11:08
It's as if the news media reports economics like it's the weather.
USA Doctors and Lawyers Will Beat Any Price
written by izzatzo, September 20, 2011 12:00
Any economist knows that unlike physical capital, human capital is mobile and therefore subject to the famous Contestability Theorem of Competition normally applied to capital intensive industries with monopoly power.

Although doctors and lawyers do have the market power to raise prices they don't for fear of market entry from foreigners abroad. The proof is in their advertized public price lists to beat any price from competitors.

The reason factory workers lost their jobs was because they had no human capital to speak of, certainly not enough to engage in the same global competition encountered by true professionals.

As the saying goes about competition, if you can't stand the kitchen then get out of the heat and get a real job like a doctor or lawyer.

Stupid liberals.
You're right - but what about automation?
written by Mark Erickson, September 20, 2011 12:12
You correctly take the amorphous "globalization" and spell out what policies contribute to this mega-trend. But I don't think I've seen any of your writing on the effect of automation. Obviously, it is part of the story, but how much a part?
written by Moopheus, September 20, 2011 1:01
You're right of course--when my wife and I paid the lawyer's bill to close on our house, I thought, if it weren't for those damned trade regulations, I could get a lawyer in Vietnam to do this for a lot less! I told my dentist the same thing, too.
Captive Market
written by Kelli, September 20, 2011 2:02
It's rather difficult to transfer service-oriented professions overseas. Should the patient in the US go traipsing off to see the doctor in China? Does the lawyer in India manage to make it to your local courthouse on time to represent you?
written by Jay, September 20, 2011 2:29
I don't agree with Dean on lawyers and in some instances on doctors. I feel the bigger culprit are the insurance companies that cause so much litigation rather than honor their obligations to the insured. People get into so much debt to become doctors they have to charge outrageous prices to ever pay off that $250,000 for med school.

Many lawyers have the same scenario with six figure debt and less training except only a handful of people are lucky to make more than $50,000 coming out of school.

You open lawyers up to even more competition then you are driving small fish out of business, keep big fish operating against their global big fish counterparts for corporate accounts and leave the vast majority of people with even less representation than they get now because that lawyer overseas will draft a will for $5.00 or handle a bankruptcy for $10.00.

The FTC actually tried to get states to open up real estate closings to non-lawyers. It depends on the state whether non-lawyers can close on houses.
written by freebird, September 20, 2011 2:49
I can't understand why my health insurance doesn't cover medical services overseas, it seems to me that they would want to encourage medical tourism if anything, given the huge savings that are reportedly available. And I rarely hear about HMOs sponsoring H1Bs unlike our local tech companies who are constantly lobbying for more. Perhaps you are onto something.
written by Bosco, September 20, 2011 3:12

You are totally correct. I've challenged Dean numerous times on this issue but he remains either unconvinced or unaware of legal outsourcing (India), the use of contract attorneys at rates as low as $15/hr, and the overall dreadful job market for attorneys fresh out of law school. Perhaps, he watched Michael Clayton and reruns of L.A. Law and imputed them to reality.
Some Trade Is Not Free Trade
written by Dean, September 20, 2011 3:20
Jay and Bosco,

the fact that we have some trade in medical services and legal services does not mean we have free trade in medical and legal services. We had trade with Mexico before NAFTA. We had much more trade after NAFTA removed barriers that prevented firms from setting up shop in Mexico and shipping output back to the U.S. If we structured our trade deals to promote trade in physicians' and lawyers' services we would get much more of these services from foreigners.

In terms of doctors with $250k in debt from med school, they might be screwed. that is what happens in a free market. head up to Detroit and talk to some former auto workers. As it stands now, the physicians have enough power to preserve their protection and their high pay. You can argue whether this is good or bad, but you can't call it free trade.
written by Jethro, September 20, 2011 9:11
2 points
1) It's medical malpractice insurance costs that are the culprit, not so much their debt
2) So the Liberals like to continually elect lawyers with little real world business experience(like Obama and Deval Patrick in Massachusetts) then complain that lawyers and doctors are protected. You think ?? Hey feel free to keep doing the same things over and expect different results - Insanity .......
Many Lawyers Work for Free
written by Paul, September 20, 2011 11:25
Apparently, Dean has never heard of lawyers who charge only contingent fees. They get nothing if they don't win and if they do win, they get only a cut of the winnings. The big money for lawyers is in contingent fees and if Chinese lawyers could get a piece of that action, they would just do the same thing.
Poor union policies and bad law are also to blame
written by Rachel, September 21, 2011 1:02
It seems that the big labor unions have never wanted to take a critical look at health costs. It's surprising, in fact, how many people don't even realize that their benefits come, by and large, out of their salary.

It's a pity that Marketplace doesn't want address such problems.

You've never discussed automation
written by Mark Erickson, September 21, 2011 11:28
This is the first time you've ever written that word on this site, if you search function works. (You have one quote, but don't address automation at all). And it's in reference to another person's story, then you only deal with the other thing mentioned.

There is one general criticism that I would make about your writing, is the tendency to beat a dead horse to death. Especially with the blog posts. Yes, many things need repeating. But this post is a terrific example of you saying the same thing as you've said many times before, while you ignore another point that you don't talk about at all.

I love your stuff, but am annoyed by this issue.
written by Mark Erickson, September 21, 2011 11:32
One of the three results for "automation" was a link to this story:
Can you critique it?
written by Jay, September 21, 2011 2:23
@Dean. I am certain you will tell me if I am wrong. Although, I feel our difference of opinion is whether free trade will make legal services more affordable for people.

In my opinion, even with the legal profession's protectionism, I feel there is so much competition within the US that most clients can get legal services for a reasonable rate if they're willing to shop around.

If you open up legal services to foreign competition then you will effectively eliminate the transactional work of many small firms that helps their cash flow. Those small firm attorneys usually charge a more honest rate for their work. These are your people that do stuff on contingency in an anti-plaintiff legal system and do countless hours of work without billing people for their effort.

You will reward the old guard with tons of capital that can afford to automate every little thing, open offices overseas, bombard people with marketing, woo prospective high net clients at the country club, and count on the big accounts to keep the lights on.

In regards to doctors, the student debt situation is very caveat emperor. But I think the better solution is to advocate for more affordable education than effectively destroying one of the few well known areas of our economy that is giving people a shot a middle class lives. That includes you nurses, PAs, techs, physical therapists, and etc. Sure, many doctors are overpaid but the health care profession is more than just doctors.

Now, if you want free trade in finance and corporate management then I have very little reservation about that.
Don't Miss the Point
written by Shawn Wilkinson, September 22, 2011 9:23
Dean's point in his commentary is that "free trade" does not exist in these agreements. I don't see him advocating one way or the other for free trade in the medical and legal professions. Instead, he is trying to illuminate the situation by pointing out the protectionism built into these agreements.

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About Beat the Press

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.