Thursday, May 17, 2007

Inequality among Dentists

In Congressional Testimony (via Luskin), Cornell economist Robert Frank discusses his views on economic inequality. Here is an interesting tidbit:

Others have argued that inequality has increased in the United States because globalization has put unskilled American workers in competition with low-wage workers from other lands. Yet the basic pattern of inequality growth has been the same even among dentists, who are largely immune from foreign competition. Most dentists today earn little more than their counterparts from 1979, but the best paid dentists earn almost three times as much.
Somewhat oddly, however, Frank then advocates a superstar theory of increasing inequality.

The basic idea, originally from labor economist Sherwin Rosen, is that technological change now allows the highest quality producers to service a larger share of the markets in which they operate. If Jon Stewart is the funniest guy around, television allows the entire world to enjoy his comedy. This gives Stewart a huge income but leaves little for second-tier comics.

I like the theory as applied to some professions. But it it does not work particularly well for dentists.

Addendum: Tyler Cowen writes about inequality in today's NY Times (although he does not solve the dentist puzzle).