Labour Immobility

The economy changes and evolves with time, it can do this by location, for example manufacturing has largely moved to the east and the west has adapted by providing services. These changes require firms in the economy to adapt to changing conditions. A critical part of this process is that factors of production need to be redeployed over time, from sectors producing goods/services that are no longer in strong demand to sectors that are expanding in the face of increasing demand. Labour mobility is one important aspect of this, because if workers cannot transfer from declining to expanding sectors, one result may be structural unemployment. There may be many reasons that make it difficult for labour to move between sectors. Unemployment whilst people search for jobs is known as frictional unemployment.

Occupational Immobility

 One important reason is that different jobs require different skills. A worker may need to re-train, re-educated and learn new skills before being able to enter a different market.

Geographic Immobility

The situation may be worse where the expanding sectors are located in a different region to the declining activities. Moving house is costly, and workers may be reluctant to search for jobs if they have to move house. Differences in house prices between regions accentuate the problem.

Encouraging Labour Mobility

One of the solutions the government could provide to prevent labour immobility is retraining programmes so that workers can gain the skills necessary to be redeployed. Firms would be reluctant to provide training themselves as there may be a free-rider problem present. This is because once workers have been trained; they may find another firm that will hire them.

Concerning geographic mobility the government may need to offer relocation subsidies in order to encourage workers to move to where they are needed. This would have the effect of reducing the need to pay unemployment benefits to people who are unable to obtain jobs close to their homes.

Page last updated on 20/10/13