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© Tutor2u Limited All Rights Reserved. These study notes are protected by copyright and may not be reproduced in part or in whole, for whatever reason, without the prior written permission of tutor2u. The use of tutor2u content for commercial gain of any kind is strictly forbidden. We reserve the right to take legal action against any party or parties found to have breached our copyright. AS Market FailureFactor Immobility |
One cause of market failure is the immobility of factors of production. There are two main types of factor immobility, occupational and geographical immobility. Immobility of labour – a cause of unemployment and market failure
One of the main causes of long term unemployment is that workers lack the skills required by expanding industries in the economy. Occupational 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 economically efficient. Some capital inputs are occupationally mobile – a computer can be put to use in many different industries. Commercial buildings 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. Labour often experiences occupational immobility. For example, workers made redundant in the sheet metal industry or in heavy engineering may find it difficult to gain re-employment. They may have job-specific skills that are not necessarily needed in growing industries. This implies that there is a mismatch between the skills on offer from the unemployed and those required by employers looking for extra workers. This is also called structural unemployment and explains why there is a core of workers in the UK who find it difficult to find paid work. Clearly this leads to a waste of scarce resources and represents market failure. Geographical Immobility People may also experience geographical immobility – meaning that there are barriers to them moving from one area to another to find work. There are good reasons why geographical immobility might exist:
The regional divide in house prices is a major contributor to geographical immobility. The widening gap in average prices and associated problems of housing affordability can make it virtually impossible for people from the North to consider moving south because they cannot afford to maintain their standard of living in the South East. Policies to Improve the Mobility of Labour To reduce occupational immobility the government might:
To reduce geographical immobility:
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| Author: Geoff Riley, Eton College, September 2006 |
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