Barriers to High-Skilled Competition?

by Russ Roberts on December 12, 2006

in Standard of Living

UPDATE: I have edited this post to take account of Dean Baker’s comments. His post that I was reacting to was a follow-up to an earlier post and I unintentionally took it out of context. My apologies.

Here is Dean Baker talking about wages:

Higher wages for high end workers lower the real wages for middle
and low income workers. This is basic and worth reading and rereading
until the point is clear.

The wages for high-wage workers are a cost of
production. They get passed on in the prices of health care, legal fees
and all the sectors that directly or indirectly employ high-wage
workers. Higher prices for goods and services lower the real wages for
the workers who consume them.

Huh? So when high wage workers get a raise, prices go up, lowering the real standard of living of everyone else?  I don’t get it. Baker goes on:

Think about it — $30 an hour might be a reasonably good wage today.
Suppose all prices double, then $30 an hour will not be a very good

Can’t argue with that.

Suppose that the price of all goods and services got cut in half,
then someone who was making $30 an hour will suddenly be doing very

That’s true, too.

If the pay of high end workers gets cut, then all the workers at the
middle and bottom get a pay increase.

This is why I want to see
competition put downward pressure on the wages of highly paid
professionals – it will raise everyone else’s pay.

OK. I get it now. (Based on Baker’s comments to the original version of the post.)

He’s arguing that high-skilled workers don’t have to compete with foreign workers. Low-skilled workers have had to compete with foreign products such as manufactured goods. But high-skilled workers have rigged the system to protect themselves from foreign competition. So high-skilled workers’ wages are artificially high. If we got rid of barriers to that competition, the wages of high-skilled workers would fall and businesses would pass on some of the savings to consumers in the form of lower prices. And that in turn would lead to  higher purchasing power for low-wage workers.

This is true. And I’m certainly in favor foreign competition for high-skilled jobs. Not sure how important it is. Foreign baseball players compete with native born Americans for jobs in major league baseball. Foreign economists compete for American teaching jobs. Foreign actors compete with Americans. It’s harder for foreign doctors to practice here because of AMA restrictions but supposedly American hospitals are using foreign radiologists to interpret x-rays.

Dean, do I have it right? Am I missing something? Let me know if there is a practical side to your plan for foreign competition for high-skilled workers that I’m missing and I’ll post it in a new post for people to talk about.


50 comments    Share Share    Print    Email

Previous post:

Next post: