Author: Geoff Riley Last updated: Sunday 23 September, 2012
One cause of market failure is the immobility of factors of production. There are two main types of factor immobility, occupational and geographical immobility.
Occupational immobility occurs when there are barriers to the mobility of factors of production between different sectors of the economy which leads to these factors remaining unemployed, or being used in ways that are not efficient.
Some capital inputs are occupationally mobile – a computer can be put to use in many different industries. And commercial buildings such as shops and offices can be altered to provide a base for many businesses. However some units of capital are specific to the industry they have been designed for – a printing press or a nuclear power station for example!
People often experience occupational immobility. For example, workers made redundant in the steel industry or in heavy engineering may find it difficult to find a new job. They may have specific skills that are not necessarily needed in growing industries which causes a mismatch between the skills on offer from the unemployed and those required by employers looking for workers. This problem is called structural unemployment. Clearly this leads to a waste of scarce resources and represents market failure.
Geographical immobility refers to barriers people moving from one area to another to find work. There are good reasons why geographical immobility might exist:
To reduce occupational immobility:
To reduce geographical immobility:
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