 If we want to, we can structure the market differently. In this session, I want to talk about high-end professionals, people like doctors, dentists, lawyers, other professionals that are highly paid. Just to be clear, these are not, by any means, the wealthiest people in the country. These are not the people getting tens of millions, hundreds of millions, billions of dollars. Hell yes. Okay, so the points I want to make, first off, say a little bit about where these people fit in the income distribution. Secondly, that our trade deals were designed to lower the pay of manufacturing workers, to subject them to international competition. So that was a conscious choice. We did not do that with high-end professionals. Okay, and lastly, there's also domestic protections, licensing regulations that also work to benefit high-end professionals that a factory worker doesn't benefit from. So again, the whole point here is we structure the labor markets to benefit those at the top, and instead, if you look at people lower down the income later, we structured the labor market to subject them to competition in ways that lower their pay. Okay, so where are they in terms of the 1%? So I'm picking on physicians, lawyers, dentists, because there's a lot of them. How many of those are in the 1%? Well, about 200,000. 27% of them were in the top 1% of the income distribution. The ones that aren't in the top 1% for the most part, they're in the top 2%. So these are people very much at the top end of the income distribution. Lawyers, similar story, they're not quite as rich, 14.6% of lawyers work in law offices. That's a pretty good number of lawyers, again, in the top 1%. Most of those who aren't in the top 1% are in the top 2% or 3%. So they're very much at the top end of the income distribution. Dentists, 26,815% of dentists are in the top 1% of the income distribution. So a large share of these people show up in the top 1% of the income distribution, again, in all cases, if they're not in the top 1%, they're probably in the top 2% or 3%. So these people are very much at the top end of the income distribution. At the high-end specialties, you're looking at people who are getting half a million a year or something pretty close to that. So you get lower-down family medicine, 236,000 a year, pediatrics, 221,000. So these are more generalist, obviously lower-paid, but, again, still enough to put these people in the top, say, 2% of the wage distribution. Just to be clear what these numbers are, these are supposed to be net. So this is what they're pocketing after they pay out whatever office staff they might have, whatever they pay out from all-practice insurance. So these are pretty high numbers, I think, by most standards. And this was a study done a few years ago. I was looking at orthopedic surgeons. These are $2008, so you'd want to multiply that by about 50% to put it in today's dollars. But the point here is that when we're looking at other wealthy countries, so I'm not looking at what physicians get in Mexico, in India, that would be much, much less. These are other wealthy countries, countries we think is comparable to the United States. So in Australia, an orthopedic surgeon gets about 42% of what an orthopedic surgeon gets in the United States. Canada, about 47%. My kingdom's closest, 73%. Most of their physicians actually get paid considerably less, so I don't know why with orthopedic surgeons they're doing well. Now one of the points, I also have density relative to the U.S. here. We actually have many more specialists in the United States than in other countries. Most other countries have somewhere around two-thirds of their doctors are generalists. In the United States, it's about one-third. So again, a lot of people will point out, a lot of doctors will point out, well, we're specialists, we have more years of training. That's interesting and worth noting, but to my view, we should think about this. We care about outcomes. So is it the case if I have, say, a hard issue, I'm much more likely to go to a cardiologist in the United States than a generalist than compared to other countries? So a lot of generalists in other countries are dealing with issues that you would see a specialist for in the United States. Well, that would be a good thing seeing a specialist if we had better outcomes. But there's really very little evidence to suggest that we're actually getting better outcomes. So people with heart disease don't in general do better in the United States. People with foot problems, seeing an orthopedic surgeon, they don't generally do better in the United States. So again, we're telling a story, we're paying more money, the person might have more training, but it's not clear we're getting any benefit from that. So there's no reason for me to be happy that my doctor might have had four or five or six years of specialized training if that doesn't improve their ability to treat me. So the evidence is I'll say it best mixed that seeing more specialist means that you get better outcomes. Now taking the other side of the story, very perhaps tragic story in some sense with manufacturing, there used to be very substantial wage premium for manufacturing relative to other workers. And the reason why that mattered was that the high paying manufacturing helped to raise wages really for non-college educated workers more generally. So people knew that if they got a job say at General Motors in the auto industry or in the steel industry, that would be a good paying job, middle class job. That became much less true over the last four decades. And you can see this very clearly here. The trend for production on supervisory workers changed in manufacturing relative to the private sector as a whole. And what you see is that there was a wage premium about 10 or 15 percent if we go back to 1980 where manufacturing workers got paid substantially more than the private sector average. That's gone the other way where by this measure it's about 10 percent less as of 222 than in the private sector as a whole. And I should add another important part of this story. There's a big gender issue here because there's no doubt about it. The vast majority of the people in manufacturing, this was true in 1980 and still true today. The vast majority of the workers in manufacturing are men. Typically spouses would be working as well. But the main income came from the male worker and in a factory. Working in a factory might be able to support a family. You can't tell that story, which isn't to say it's good that women were discriminated against or whatever. I'm just giving the reality about manufacturing jobs. And that helped boost the pay for non-college educated workers more generally because these were opportunities that existed. OK, so why did that happen? There's two stories that economists will tell. One of them is that, well, manufacturing is just a declining share of total employment. Here's the data I have going back to 1970. And you can see there's been this consistent decline in manufacturing employment as a share of total employment. And people tell this story, well, that's just technology. More productivity growth tends to be higher in manufacturing, which means you need fewer workers to produce the same amount of output. So that's been a long-term trend in the last 50 years. That's the story. Also, obviously, we're spending more money on services. All that's true, but it's also deceptive. Suppose we don't look at shares. We look at actual levels of employment. Well, what you see is that there was relatively little change in manufacturing employment over the year. It goes down a little bit, but basically what you see are cyclical ups and downs. So there's some downward trend, but it's very, very modest. Then you suddenly see a huge fall off in the period from the late 90s till even prior to the Great Recession. We can see clearly the Great Recession begins 2008, even prior to that. Well, why is that? Well, that was the period when the trade deficit exploded. What do you have here? We see a loss of over 3 million manufacturing jobs, roughly 20% of total manufacturing employment, in the period from 2000 to 2007. I'm picking 2007 because that's before the Great Recession. And that coincides with an explosion in the trade deficit. What's going on here is that manufacturing is declining as a share of total employment because we're seeing more employment outside of manufacturing, but the big fall in the number of jobs in manufacturing coincides with this explosion in the trade deficit from 2000 to 2007. And again, we see a further drop as we get into the Great Recession. We've recovered somewhat from that, but certainly nowhere close to where we were in 2000. So the absolute number of jobs in manufacturing is plummeted. And then on top of that, it's put downward pressure on the wages of manufacturing workers more generally. So trade has been a very, very big part of the story of both employment and wages in manufacturing. Okay, the next point, compensation and manufacturing. This just is a comparison with other countries that I think help makes the point. So this is looking at 1997. So before the big explosion in trade deficit, if we look at where the United States stands relative to other countries, this is hourly compensation, so this is including benefits like health care, retirement benefits, whatever other benefits workers get. The United States is pretty much in the middle of this group. So Canada, Netherlands, Germany, again, these are wealthy countries we think is comparable to the United States. So we're pretty much in the middle of that group. Okay, well, where do we stand in 2011? Okay, we're at the bottom there. So we see that in this 14-year period from 97 to 2011, coinciding with the explosion in the trade deficit, our manufacturing workers lost a huge amount of ground relative to manufacturing workers in other wealthy countries. Okay, so why is it that our highly paid professionals didn't see the same impact on their wages from trade? Well, we didn't design our trade deals that way. Our trade deals did very little to free up trade for highly paid professionals. So our trade deals were very consciously designed to make it as easy as possible to import manufactured goods from Mexico, from China, from other developing countries with the idea those goods would be cheaper but also would put downward pressure on the wages of manufacturer workers in the United States. We didn't design our trade deals the same way with doctors, with dentists, with lawyers. With doctors, we could have said, okay, there's all these really bright people in India, why don't we make it possible for them to study to our standards and then come practice medicine in the United States? We'd do all these extra doctors here, lower the pay of doctors, make health care costs cheaper. We didn't do that. We have a requirement that to practice medicine in the United States, doctors have to complete a U.S. residency. So this means doctors not just in India but even in Germany and France, countries we think is comparable to the U.S., they have well-trained doctors, they can't just come and practice in the United States, they'd get arrested. They have to complete a U.S. residency. That's a serious protectionist barrier. And why is it there? Well, doctors don't want competition. So they require that you have to complete a U.S. residency. And I should also point out, the number of residency slots are very limited. So you have a lot of doctors, a lot of people that train as doctors that would actually be happy to come and do a residency program. We very much limit the number of residency slots and we limit the number that are open to foreign medical students. So even if you're prepared to go through that barrier, it's very, very difficult. Okay, we also limit scope of other healthcare professionals. Okay, so there are other healthcare professionals, doctors, physicians assistants, nurse practitioners, highly trained professionals. And in many cases, they're probably better for specific purposes than doctors because they see more cases. And they're very much constrained by licensing requirements and what they could do. There have been some good studies that look at issues like nurse practitioners being able to prescribe drugs without the supervision of a doctor. And the evidence is that they don't make mistakes. They're not prescribing crazy painkillers to people who don't need them. But we have restrictions in most states that limit the practice of nurse practitioners, physicians, assistants, other professionals who, as I say, in many cases will be as good or better than the doctors who are treating patients. We also allow the physicians to largely set Medicare reimbursement rates. Again, this is one of these things that when you look at you go, this is kind of incredible. So how does Medicare set reimbursement rates for surgeons? Well, they have a panel which is largely surgeons that decides on the reimbursement rates for surgeons. Well, there might be some conflict of interest there. Well, who cares? So that's how they set reimbursement rates for surgeons, for orthopedics, for cardiologists. It's set by panels that are largely composed of those specialists. Well, the argument is, of course, the specialists know what's involved. Well, that's true. But they also have an interest in getting high reimbursement rates. Now, that's a big deal both because Medicare is a huge program, but also because Medicare reimbursement rates act as a basis for private insurers. So most private insurers look at the reimbursement rates under Medicare, and they set a reimbursement rate usually somewhat higher, say 10%, 15% higher. But that's the basis for the vast majority of reimbursement rates throughout the medical profession. So the fact that you have boards that are largely composed of the specialist, in effect determining their own rates, well, that's going to put some serious upward pressure on those rates. So they don't face the same sort of competition. I always say it'd be like if the auto workers had a board that determined the pay of auto workers, well, they probably get paid a lot more money. They don't have that. Doctors do. Dentists, a similar story. Dentists have to complete a graduate program at a US dental school. They're good graduate programs in dental school in Germany and France and UK elsewhere in the world. Well, that's not good enough. You have to complete a program at a US dental school. So again, this is a classic protectionist barrier. But trade agreements, we want to make it easy as possible to import cars from Mexico and other countries. We didn't go in there and our trade deals go, well, we want to make sure we can get dentists, make sure they meet our standards, but we want to make sure that once they meet our standards, they can come and practice in the United States. We did not do that. Similarly with dentists, limiting the scope of practice at dental hygienists, that most people you see a dentist, at least my experience has been, most the time you're seeing a dental hygienist, they clean your teeth, they do the x-rays, the dentist comes in maybe for a minute and goes, how are things going? Well, most states, maybe all states, very much limit the scope of the practice for a dental hygienist requiring that they work under a dentist. So they have to have that dentist there. They can't just clean my teeth and do the x-rays. They get arrested. They need the dentist there to supervise them, even though their supervision may be pretty much meaningless in many cases. So again, that's a way of ensuring that they have more work, they have higher income. Lawyers, bar requirements, state versus national. If you want to practice law in New York as opposed to California, you have to take a separate bar exam. That's something that, again, we could have standardized. States could have higher requirements if they like, but they could say, okay, New York, California's known to have the hardest bar. So if you want to practice in California, previously they've been practicing in New York. You have to take some subsection of the bar. I may not have to get into details here, but the point is there are ways to rationalize this. Still allowing states to have their own laws. They don't have to have all the same penalties for robbery or whatever it might be. But you could standardize the system so that if you pass the bar anywhere, you could practice everywhere. That's a simple enough thing to do. I should also point out in California, they quite explicitly make the exam harder to limit the competition. Second category, unnecessary complexity. There's a lot of things that we do in our lives. Ride a wheel, we take out a mortgage, you have a divorce. These are very standardized processes where you could limit or radically reduce the need for lawyers by standardizing the process. Now I will say a lot has been done in that area over the last three or four decades. A lot of states, you could just download a wheel, more standardization with divorce. Mortgages, at least my experience has been every time I've taken out a mortgage, I have to have someone sit there and pay them a lot of money to be the lawyer when I'm taking out the mortgage. They don't do anything, but they get paid for that. So the point here is just that there's unnecessary complexity really in the vast majority of cases. We should simply be able to download the forms from the web and that's the end of the story. We shouldn't have to pay a lawyer for that. Also, lawyers benefit a lot from rents elsewhere in the economy. So intellectual property. This is the most rapidly growing area of law. It's also the most highly paid. So you have massive payouts to lawyers' law firms from all these various intellectual property issues. So a few years ago, every time Samsung or Apple came out with their new smartphone, the other one sued. So they would sue for patent infringement and it would take years and years. They'd always settle because they both had complaints against each other and maybe some money would go back and forth. But the point was there was a huge amount of legal expenses involved in that. So a lot of lawyers got very rich over Apple and Samsung fighting. And just to be clear, our point here is that it didn't do anyone any good. It's not good for the economy. Apple comes out with their new phone if you like the Apple go and buy it. Samsung has their new phone if you like that, go and buy it. That should be the end of the story. But because we have patent issues, there was a lot of money spent on fighting between the two of them in court rather than fighting between the two of them and who produces a better phone. That's where we want the competition, not who's got the better lawyer. But in the fight over who's got the better lawyer, a lot of lawyers got rich. Tax avoidance is another area that because our tax code is so complicated and it's particularly on the corporate side, we have a lot of lawyers who get very rich finding clever ways to keep companies from paying taxes. So again, if we had a more simple tax code, then you would get rid of a lot of work for lawyers. Which again, if we think about how we want the economy to be an efficient economy, we don't want lawyers except where we absolutely need them. That's not to attack lawyers, but it's just the reality. We want an economy where we need as few lawyers as possible. The fact that we need lawyers is a problem with our economy. We want to minimize our need for lawyers. Okay, so how much savings would we get from lowering pay and I'm picking on physicians because they're the highest paid profession and there's a lot of them. How much money would we save if we got the pay of physicians more in line with other rich countries? So I'm just throwing out a hypothetical. Suppose we reduce the average physicians pay by 100,000. So if we go back, the average physicians pay is currently about 300,000 a year. So if you lower their pay by 100,000, this doesn't mean every physician. So you wouldn't lower the pay of a family practitioner by 100,000, but you might lower a cardiac surgeon by 120, 130, 140,000. Lower it by 100,000 on average. What would that mean? Well, the savings would be about 90 billion a year. Okay, how large is that? Well, it's a bit less than half a percent of GDP or I'm putting up my friend here, the food stamp budget. That's about 100 billion, 105 billion a year. So it gets us most of the food stamp budget. So we would pay for the annual food stamp budget with our savings from bringing our doctors pay. It'd still be above the pay in other countries, other wealthy countries, but bringing it somewhere closer in line with what physicians get paid in France, Germany, United Kingdom. So there's a lot of money there. That's the point. It's a substantial chunk of money. Okay, well, the effect of trade on manufacturing. This again, to my view, it's kind of silly that we even have this argument. There are a lot of economists who are really invested in the idea that, oh, we could have more trade with China, more trade with Mexico, and it's not gonna affect the pay of manufacturing goods. Well, that was, to my view, just completely disingenuine. And part of the story here is that in economic theory, that was a predicted outcome. Putting up Stoper-Samuelson, because it's a very famous theorem, 1941, point is it's been around a long time. This isn't something that some clever grad student figured out a few years ago. Paul Samuelson, the Nobel Prize winner. He's the perhaps the most prominent economist in the United States. This is a well-known theorem. So what does it say? It says when you open up trade with two countries, or it could be multiple countries, that the country that the scarce good in one country will become cheaper and the relatively abundant good will become more expensive. So in the case of the United States, the scarce good, you could think of this different ways, could be capital, could be less skilled labor, that will become cheaper. So in other words, the work of manufacturing workers will become relatively cheaper because less skilled labor, less educated labor, is scarcer in the United States compared to, say, China or Mexico. So it wasn't like, oh my God, this happened out of the blue. Who could have imagined? It was predicted, well-established trade theory that this would be the result. So that should not have been a surprise to anyone. Now that's if you just had complete free trade. So suppose we said, okay, doctors in India, they could meet our standards, come practice the United States. We did that with every country in the world. We had a clear way they could meet our standards practice the United States. That would still be the outcome. We'd see manufacturing workers' wages fall in the United States relative to pay of doctors. But it's actually worse than that because we didn't have complete free trade. What we did was we subjected our manufacturing workers to as close to complete free trade as we could while we maintained the production for the most highly educated workers. So is it a surprise that the pay of manufacturing workers and less educated workers more generally fell relative to the pay of doctors and lawyers and other highly educated professionals shouldn't be a surprise at all. 100% predictable and of course that's what actually happened. Okay, so point here, policy choices. That this wasn't any sort of natural development. We adopted trade policies, put manufacturing workers in competition. Okay, that was a policy choice. And again, we did not do that with more highly paid professionals. The loss of millions of good paying manufacturing jobs put downward pressure on the wages of less educated workers more generally. Doctors, other highly paid professionals, they didn't have the same issue. They had both protection from foreign competition. As I pointed out, they also have a lot of protection in domestic competition. So point here is people want to attribute this to technology. That's just not true. It wasn't just that technology changed and suddenly the work of auto workers, steel workers, so much less valuable, we rigged the deck. Okay, so we made it so that workers with less education, manufacturing workers, they would get lower pay. We protected our most highly, highly paid professionals.