Study Notes
Market failure in the labour market occurs when barriers prevent workers from moving freely between jobs or regions, leading to inefficiencies.
- Geographical Immobility — occurs when workers face challenges moving between areas, regions, or countries. Example: Workers in Detroit may struggle to find jobs in New York due to search costs and social ties.
- Occupational Immobility — occurs when workers face challenges transitioning from one occupation to another. Example: A teacher attempting to become an accountant may face difficulties due to specialized skills required.
- Structural Unemployment — a type of unemployment resulting from geographical or occupational immobility. Example: High unemployment in certain areas due to workers' inability to relocate or retrain.
Exam Tips
Key Definitions to Remember
- Geographical Immobility
- Occupational Immobility
- Structural Unemployment
Common Confusions
- Confusing geographical immobility with occupational immobility
- Assuming all workers can easily relocate or change jobs
Typical Exam Questions
- What might be the effect of an increase in house prices on the mobility of labour? A decrease in the geographical mobility of labour
- What could cause a fall in the supply of labour? An increase in benefit payments
- What are the consequences of occupational immobility of labour? Skill mismatch, structural unemployment, and wage rate distortions
What Examiners Usually Test
- Understanding of the causes and consequences of labour immobility
- Ability to explain how immobility leads to market failure
- Knowledge of how wage disparities and unemployment are linked to immobility