The health care sector is a place where the case for occupational licensing is strong. People want to be treated by real doctors, and information asymmetries are enormous. But just because the case for licensing is strong doesn't mean the opportunity for rent-seeking goes away. And via John Sides, a very neat new paper from Brendan Peterson, Sonal Pandya, and David Leblang shows that in some American states rent-seeking cartels use the licensing process to prevent the inflow of skilled immigrant health care professionals, thereby driving up prices and their own earnings:
Skills are often occupation-specific, a fact missing from existing research on the political economy of immigration. Although analyses of survey data suggest broad support for skilled migration, occupational licensing regulations persist as formidable barriers to skilled migrants’ labor market entry. Regulations ostensibly serve the public interest by certifying competence but are simultaneously rent-preserving entry barriers. We analyze both the sources of US states’ licensure requirements for international medical graduates (IMGs), and the effect of these regulations on migrant physicians’ choice of US state in which to work over the period 1973-2010. Analysis of original data shows that states with self-financing state medical licensing boards, which can more easily be captured by incumbent physicians, have more stringent IMG licensure requirements. Additionally, we find that states that require IMGs to complete longer periods of supervised training receive fewer migrants. Our empirical results are robust to controls for states’ physician labor market. This research identifies an overlooked dimension of international economic integration: implicit barriers to the cross-national mobility of human capital, and the public policy implications of such barriers.
This is a great example of the kind of easy choice on the budget deficit we should be trying to make. Creating a clear path whereby residents of countries that have a comparative advantage in medical training can qualify to practice medicine in the United States and move here would be a huge winner. It would raise the real incomes of the vast majority of Americans, drastically increase the real incomes of the immigrants, and improve the overall sustainability of the American welfare state. But even better, if it were made really clear, and institutionalized, you'd see the standard benefits of free trade for a developing nation—the encouragement of investment in the medical training industry in order to further build on the initial gains from trade.