Factor Immobility

Statement

Factor immobility occurs when factors of production cannot be allocated efficiently to the production of the goods and services wanted by society. In the H2 syllabus it affects two factors:

• Labour immobility — occupational immobility (workers cannot move between jobs because they lack the relevant skills — a skills mismatch, leaving them structurally unemployed) and geographical immobility (workers cannot or will not move between regions in search of work).
• Capital immobility — functional immobility (a capital good cannot be transferred from one use to another) and geographical immobility (a capital good cannot be transferred from one location to another).

Notes

Factor immobility is a market failure because it prevents factors of production from flowing to the sectors where society’s demand for them is rising, leaving resources idle or stranded in declining uses — an allocative inefficiency. Occupational labour immobility is the microeconomic root of structural unemployment. The remedies — retraining, infrastructure, business hubs, capital subsidies, attracting foreign direct investment — are set out in addressing factor immobility. The syllabus examines this in prose: there is no factor-immobility diagram.