3.5 MARKET IMPERFECTION - FACTOR IMMOBILITY
Factor immobility is where it is difficult for factors of production to move between different areas in the economy. We have two types of factor immobility and they are:
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Geographical Immobility - (Labour)
This refers to the barriers that prevent factors from moving from one geographical location to another in order to find work. It is usually only associated with labour as capital can be moved anywhere. For example, there may not be much work in the north of England but there is likely to be jobs in the south, so why can’t or don’t people move?
There are huge financial costs involved in moving house, such as estate agent fees and removal costs. There are also huge variations in housing prices. In our example, house prices in the north of England are just a fraction of what they are in the south. A way to overcome not being able to afford a house would be to rent but renting is still more expensive down south than in the north. Furthermore, the cost of living tends vary in different places. In addition, individuals may not want to move because of family ties, which keep individuals in certain locations.
A way to overcome geographical immobility would be to create affordable housing that enables people to move to a location where they can find work. The affordable housing gives the worker a helping hand initially and when the worker can afford to sustain themselves or become settled, they move on and buy their own property.
Another policy to correct geographical mobility is to move the jobs to the location where there is unemployment. Job numbers can increase in a location if there are enterprise zones and increasing the investment in certain locations. George Osborne plans to create a Northern Powerhouse, which is meant to increase the number of businesses that choose to locate in the north. As firms demand labour, jobs and employment should increase.
This refers to the barriers that prevent factors from moving from one geographical location to another in order to find work. It is usually only associated with labour as capital can be moved anywhere. For example, there may not be much work in the north of England but there is likely to be jobs in the south, so why can’t or don’t people move?
There are huge financial costs involved in moving house, such as estate agent fees and removal costs. There are also huge variations in housing prices. In our example, house prices in the north of England are just a fraction of what they are in the south. A way to overcome not being able to afford a house would be to rent but renting is still more expensive down south than in the north. Furthermore, the cost of living tends vary in different places. In addition, individuals may not want to move because of family ties, which keep individuals in certain locations.
A way to overcome geographical immobility would be to create affordable housing that enables people to move to a location where they can find work. The affordable housing gives the worker a helping hand initially and when the worker can afford to sustain themselves or become settled, they move on and buy their own property.
Another policy to correct geographical mobility is to move the jobs to the location where there is unemployment. Job numbers can increase in a location if there are enterprise zones and increasing the investment in certain locations. George Osborne plans to create a Northern Powerhouse, which is meant to increase the number of businesses that choose to locate in the north. As firms demand labour, jobs and employment should increase.
Occupational Immobility
This is where labour from one sector of the economy cannot do a job in another sector of the economy. This leads to factors being unemployed, or being used in a way that does not fully utilise that factor of production.
Labour tends to experience occupational immobility. If a worker used to work in the mines but got made redundant as they closed down, their skill set would be focused on mining. This may lead to a mismatch of skills between what they have and what jobs in that area want. This leads to unemployment and is known as structural unemployment. A way to overcome this is to train and retrain unemployed workers, which gives them the skills that the jobs in that area require. This is usually carried out and funded by the state. Another policy adopted by the state is to give companies incentives to take on apprentices.
Capital can also experience occupational immobility. A specialist machine that is designed just for that industry would be made redundant if there was a down turn in that industry meaning that it was no longer required. As the machine is so specific to that industry, it is likely that it couldn’t be used else where, resulting in it becoming idle. Other pieces of capital such as computers could be used in many industries, as they only need new software to be installed to change their function.
This is where labour from one sector of the economy cannot do a job in another sector of the economy. This leads to factors being unemployed, or being used in a way that does not fully utilise that factor of production.
Labour tends to experience occupational immobility. If a worker used to work in the mines but got made redundant as they closed down, their skill set would be focused on mining. This may lead to a mismatch of skills between what they have and what jobs in that area want. This leads to unemployment and is known as structural unemployment. A way to overcome this is to train and retrain unemployed workers, which gives them the skills that the jobs in that area require. This is usually carried out and funded by the state. Another policy adopted by the state is to give companies incentives to take on apprentices.
Capital can also experience occupational immobility. A specialist machine that is designed just for that industry would be made redundant if there was a down turn in that industry meaning that it was no longer required. As the machine is so specific to that industry, it is likely that it couldn’t be used else where, resulting in it becoming idle. Other pieces of capital such as computers could be used in many industries, as they only need new software to be installed to change their function.
Market Failure
Factor immobility is a cause of market failure as the free market fails to provide an efficient allocation of resources. Here there is a role for governments to intervene in the market.
Factor immobility is a cause of market failure as the free market fails to provide an efficient allocation of resources. Here there is a role for governments to intervene in the market.