Factor Immobility
One cause of market failure is the i mmobility of factors of production. There are two main
types of factor immobility, occupational and geographical immobility.
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 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
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.
Differences in the general cost of living between regions and also between countries.
Immobility of labour – a cause of
unemployment and market failure
One of the main causes of unemployment is
tha t w ork ers la ck the skill s r equ ire d by
expanding industries in the economy.
