Factor immobility

Question 1

What is factor immobility?

Answer 1

Factor immobility occurs when it is difficult for factors of production (e.g. labour and capital) to move between different areas of the economy. Factor immobility could involve:

Geographical immobility – When it is difficult to move from one geographical area to another.

Occupational immobility – difficult to move from one type of work to another.

Question 2

1 Policies to overcome geographical immobility

Answer 2

Improve quality and quantity of rented accommodation in employment hotspots. For example, building more council houses in London and south. However, this may be difficult because there is limited space in London and there is already congestion and overcrowding.

Question 3

2 Policies to overcome geographical immobility

Answer 3

Move jobs out of London. The government has moved many public agencies out of London, for example, DVLA was moved to Swansea. The idea is to move jobs out of London – creating jobs in Wales and shifting demand from London.

Question 4

3 Policies to overcome geographical immobility

Answer 4

Improved transport links. High-speed railway lines into London may enable people to commute from longer distances

Question 5

Reasons for capital immobility

Answer 5

If there is a rapid structural change in the economy. It may take time to alter machines and capital to keep up to date with changing nature of the economy.

Question 6

1 Importance of factor immobility

Answer 6

Globalisation is accelerating economic changes. Companies are outsourcing production to lower labour cost economies, causing disruptions in labour markets.

Question 7

2 Importance of factor immobility

Answer 7

Factor immobility is causing structural unemployment and/or lower wages – especially for manual workers who lose their jobs.

Question 8

3 Importance of factor immobility

Answer 8

Economic inefficiency. Factor immobility leads to resources being underused and causing a Pareto inefficient outcome.

Question 9

4 Importance of factor immobility

Answer 9

Factor immobility is a cause of market failure. The free market fails to provide an efficient allocation of resources because of the geographical and occupational immobilities.

Question 10

5 Importance of factor immobility

Answer 10

Inequality. Factor immobility can lead to increased inequality. This has occurred in past three decades.

Question 11

Policies to overcome factor immobility

Answer 11

Improve provision of information

Subsidise firms to move to depressed areas.

Education and retraining for workers who don’t have relevant skills