MARKET FAILURE IN THE LABOUR

MARKET
One of the main factors that cause the market to fail is the mobility of
labour.

GEOGRAPHICAL IMMOBILITY OF LABOUR

This is when the workers find it difficult to move to another

geographical area in search of jobs. This occurs due to:

• The worker is unaware of the availability of the job

• High rent/accommodation costs
• Attachments to family and friends
• Language barriers

Consequences of geographical immobility

• There are differences in wage rates in different areas of the

country for the same job. As a result the market forces are not
working, leading to market failure.
• Increasing difference in the rent in different areas make
geographical immobility worse. The rent will be much higher in
areas where there is a lack of workers (or more jobs) than in those
areas where there is high unemployment (no jobs).
• Firms will find it difficult to expand if there are less workers
available. If they are unable to expand, the level of output will
remain low.

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 • There are certain areas in which the workers have remained
unemployed for a very long time period. They are unable to find
jobs easily. This is a waste of economic resources. The country
could have been producing a much higher level of output had
these people were working.
• Government will also have to support these people which is an
additional cost for them.
• The standard of living of people in these areas are very low. It will
affect the businesses and the people in these areas.

OCCUPATIONAL IMMOBILITY OF LABOUR

This is when a worker finds it difficult to move from one job to another.

Eg: a teacher becoming an accountant.

This problem arises due to lack of knowledge, skills, talents and

qualifications.

During the short term, this is a major problem. Workers will find it
difficult to move from one job to another. In the long term, they are
able to learn the new skills needed for the job and grow.

It may require time to learn and gain the skills needed to do a new job.

It can be another problem where they will find it difficult to change the
occupation if they find that the cost of learning the new skill is too high.

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Consequences of occupational immobility

• Firms are unable to expand as they do not have access to the level
of labour skills needed. This will reduce the level of potential
output of the country.
• People will be aware of certain jobs that can leave them
unemployed in the future.’
• These people will remain unemployed for a long period of time
and may end up taking jobs that require less skills than they
possess. This is called underemployment. This is known as a
waste of economic resources.
• Wage rates can be distorted. People will be paid a higher wage if
there is lack of workers in that particular job. Its not because of
the level of skills or difficulty of the job. This changes the wage
rate that should be paid.

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