Korean doctors are trying to protect their market power

In my ECONS101 and ECONS102 classes, we define market power as the ability of the seller (or sometimes the buyer) to have an influence over market prices. How do sellers (or buyers) get market power? Essentially, a seller (or buyer) has market power if they don’t face a lot of competition from other sellers (or buyers). The fewer competitors a seller (or buyer) has, the more market power they will have, and that generally means that they can set a higher price (if they are a seller, or a lower price if they are a buyer).

With that in mind, this report from Reuters should come as no surprise:

South Korea's prime minister pleaded on Sunday with doctors not to take people's lives hostage, a day before scores of trainee doctors are expected to quit to protest a plan to increase medical school admissions and the number of physicians.

Trainee doctors at the country's five biggest hospitals, all in Seoul, have said they would tender their resignation on Monday, raising concerns about the impact on medical service as the system relies heavily on them for emergency and acute care.

Let's be clear. Whatever 'concerns' the trainee doctors are raising are secondary to their desire to protect themselves from competition. If you've spent several years in medical school, possibly running up a large student loan debt, the last thing you want is lots of competitors arriving in the market in a few years' time, driving down the price of your services. This type of coordinated behaviour, trying to protect a position of market power, is a form of rent seeking. Economists call it rent seeking because another term for economic profit for sellers is the sellers' economic rent.

What's interesting to me is that this is essentially the same behaviour that we see in some specialised labour markets in New Zealand. When the Nursing Council imposes a "long and costly bridging course" on foreign-trained nurses, that's rent seeking. When foreign-trained teachers have to jump through multiple hoops, some of which are imposed by the Teaching Council, that's rent seeking.

Some of the most effective rent seekers are engaged in occupational licensing. The sad thing is that these are exactly the occupations (like doctors, nurses, and teachers) where New Zealand (along with many other countries) is facing labour shortages. Those labour shortages are being perpetuated by the occupational in-group, at the expense of everyone else.

I hope that the Korean government doesn't give in. It shouldn't. Governments should resist obvious rent seeking behaviour from firms. They should also resist obvious rent seeking behaviour from occupational groups.

[HT: FirstFT Asia morning newsletter]