Economics

Study Notes

Factor Immobility (Labour Markets)

Level:
AS, A Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

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 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 leading 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.
Occupational Immobility

Geographical Immobility

Geographical immobility refers to barriers people moving from one area to another to find work. There are good reasons why geographical immobility might exist:

  • Family and social ties
  • The financial costs involved in moving home including the costs of selling a house and removal expenses.
  • Huge regional variations in house prices leading to a shortage of affordable housing in many areas
  • The high cost of renting property
  • Differences in the general cost of living between regions and also between countries
  • Migration controls e.g. a cap on inward migration
  • Cultural and language barriers
Geographical Immobility

Youth Unemployment - NEETS

In the first quarter of 2013, 1.1 million 16-24 year olds in the UK were not in education, employment or training (NEET), 15% of people in this age group.

Not all unemployed 16-24 year olds are NEET and not all people who are NEET are unemployed. 60% of unemployed 16-24 year olds are NEET, the rest are in education or training. 53% of people who are NEET are unemployed, the rest are economically inactive: not seeking work and/or not available to start work.

Current Government schemes with elements aimed at reducing the number of young people who are NEET include: lifting the participation age, the Youth Contract and the Work Programme

Adapted from news reports, July 2013

Policies to Improve the Mobility of Labour

To reduce occupational immobility:

  • Invest in training schemes for the unemployed to boost their human capital to equip them with new skills and skills that can be transferred from one occupation to another.
  • Subsidise the provision of vocational training by private sector firms to raise the skills level

To reduce geographical immobility:

  • Reforms to the housing market designed to improve the supply and reduce the price of rented properties and to increase the supply of affordable properties.
  • Specific subsidies for people moving into areas where there are shortages of labour – for example teachers and workers in the National Health Services


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