One cause of market failure is the immobility of factors of production. There are two main types of factor immobility, occupational and geographical immobility.
Occupational immobility
Occupational immobility occurs when there are barriers to mobility of factors of production between different sectors of the economy which leads to these factors remaining unemployed, or used in ways that are not efficient.
Some capital inputs are occupationally mobile – a computer can be put to use in many different industries, commercial buildings such as shops and offices can be altered to provide a base for many businesses.
However some units of capital are specific to the industry they have been designed for, like a printing press or a nuclear power station.
People often experience occupational immobility eg workers made redundant in the steel industry or in heavy engineering industry may find it difficult to find new jobs. They may have specific skills that are not necessarily needed in growing industries which causes a mismatch between skills on offer and those required by employers. This problems leads to structural unemployment, a waste of scarce resources and represents a market failure.
Policies to reduce occupational immobility
1] Investment in training skills for unemployed to increase their human capitalin order to equip them with new skills and skills that can be transferred from one occupation to another.
2] Subsidise the provision of vocational training by private sector firms ti raise the skills level.
Geographical immobility
Geographical immobility occurs when there are barriers to mobility of factors of production between different areas of the economy which leads to these factors remaining unemployed, or used in ways that are not efficient.
Geographical mobility exists because of
Family and social ties
The financial costs involved in moving home including costs of selling a house and removal expenses
High regional variations in house pricesleading to shortage of affordable houses in many areas
differences in the general cost of living between regions and also between countries.
Policies to reduce geographical immobility
1] Reforms to the housing market designed to improve the supply and reduce the cost of rented properties and to increase the supply of affordable properties.
2] Encourage part-ownership / part-rented housing
3] Specific subsidies for people moving into areas where there is labour shortage eg teachers, doctors in rural areas.