What this lesson teaches
I can explain the causes of market failure: public goods, externalities, information failure, immobile factors and market dominance.
Syllabus 9570, 2.3.2(b). Market Failure and its Causes: Markets may fail in terms of; non-provision of public goods due to non-rivalry and non- excludability; non-socially optimal levels of goods and services due to the presence of externalities, information failure (including asymmetric information), immobility of factors of production, and market dominance
Make a guess
A town has many unemployed printing workers and many unfilled care jobs. Why do the vacancies not simply fill?
- The unemployed would rather live on savings than take a new job.
- Workers lack the skills or cannot reach the jobs.
- Care jobs pay too much for printers to apply.
Show the answer
Workers lack the skills or cannot reach the jobs.
Occupational and geographical immobility keep workers from new jobs. So unemployment and vacancies can exist side by side.
When workers or capital cannot move to new uses, resources stay idle while jobs go unfilled.
Factor immobility is when factors of production cannot easily move to where they are most needed.
Occupational immobility: workers lack the skills for new jobs. A retrenched factory worker may not have the qualifications for a nursing job.
Geographical immobility: workers cannot move or travel to where the jobs are, because of housing, transport or family ties.
The result is unemployment alongside unfilled vacancies, which is inefficient. Singapore's SkillsFuture and career conversion programmes aim to reduce occupational immobility.
- Occupational
- Skills do not match jobs.
- Geographical
- Cannot move or travel to jobs.
Worked example: Vacancies and unemployment side by side
A town has unemployed printing workers and many unfilled care jobs. The care jobs need a certificate, and some are hard to reach at shift times.
- Occupational immobility: printing skills do not match care work.
- Geographical immobility: no transport at shift times.
- Training grants address the first; better transport or shuttle buses address the second.
- Success is measured by jobs filled, not just by courses taken.
Watch out for this
If there are vacancies, unemployed workers will simply fill them.
Workers may lack the skills or be unable to reach the jobs, so unemployment and vacancies can exist together.
Check your understanding
A retrenched printer cannot take a vacancy in data analytics because they lack the skills. What is this?
- Geographical immobility of labour, as the new jobs are elsewhere.
- Occupational immobility of labour.
- Moral hazard.
Show the answer
Occupational immobility of labour.
Right. The worker's skills do not match the new job.