factors affecting labour mobility

Employment / Unemployment – Factors Affecting Labour Mobility (Cambridge AS/A‑Level Economics 9708)

1. What is Labour Mobility?

Labour mobility is the ability of workers to move between jobs, occupations or locations in response to changes in economic conditions. High mobility helps the labour market adjust quickly, reducing structural unemployment; low mobility can lock workers into unsuitable jobs.

2. Labour‑Market Theory (Syllabus 8.3)

2.1 Derived Demand for Labour (8.3.1)

• Firms demand labour because it is a productive input in the creation of a sellable good or service.
• Derived demand means the demand for labour is derived from the demand for the product it helps to produce.
• In a perfectly competitive product market the firm’s demand for labour is based on the marginal revenue product (MRP) of labour.

MRP = MP × MR where

• MP = marginal product of labour (extra output from one additional worker)
• MR = marginal revenue (price of output in a perfectly competitive market)

2.2 Factors that Shift the Labour‑Demand Curve (8.3.2)

2.3 Movements vs. Shifts on the Labour‑Demand Curve (8.3.3)

• Movement along the curve: Caused by a change in the wage rate, with all other determinants unchanged.
• Shift of the curve: Caused by a change in any of the determinants listed above.

Diagram suggestion: Wage (vertical) vs. Quantity of labour (horizontal). Show a movement from point A to B (different wage) and a parallel right‑ward shift from D₁ to D₂ (technology improvement).

2.4 Marginal Revenue Product (MRP) Theory (8.3.4)

Firms will hire workers up to the point where MRP = Wage (W). The MRP curve is derived from the marginal product curve multiplied by the marginal revenue (price) of output.

Worked example (perfectly competitive product market):

• Product price = £10 per unit.
• Marginal product of the 5th worker = 2 units.
• MRP₅ = 2 × £10 = £20.
• If the prevailing wage is £18, the firm hires the 5th worker (since £20 > £18). If the wage rises to £22, the firm will not hire that worker.

2.5 Supply of Labour – Wage & Non‑Wage Factors (8.3.5)

• Wage rate (real wage): Higher real wages increase the opportunity cost of not working, shifting the supply curve right.
• Non‑wage benefits: Employer‑provided health care, pensions, flexible hours, childcare.
• Demographic factors: Age structure, population growth, gender‑participation rates.
• Education & training: Higher qualifications raise the effective supply of skilled labour.
• Immigration & residency rules: Easier entry expands the labour pool; restrictions contract it.
• Tax incentives / welfare benefits: Tax credits or negative income tax for low‑income workers can increase labour‑force participation.

2.6 Movements vs. Shifts on the Labour‑Supply Curve (8.3.6)

• Movement along the curve: Result of a change in the wage rate, holding other factors constant.
• Shift of the curve: Caused by changes in non‑wage determinants (e.g., a new childcare subsidy shifts supply right; a rise in university tuition shifts it left).

Diagram suggestion: Upward‑sloping supply curve; illustrate a rightward shift from S₁ to S₂ due to a government‑funded training scheme.

2.7 Wage Determination in a Perfectly Competitive Labour Market (8.3.7)

• Equilibrium wage (W*) and employment (L*) occur where the labour‑demand curve intersects the labour‑supply curve.
• If the wage is set **above** equilibrium → surplus labour (unemployment).
• If the wage is set **below** equilibrium → labour shortage, putting upward pressure on wages.

Diagram suggestion: Show D and S intersecting; shade the surplus area when wage > W* and the shortage area when wage < W*.

2.8 Wage Determination in Imperfect Labour Markets (8.3.8)

• Monopsony: A single large employer faces an upward‑sloping labour‑supply curve and can set wages below the competitive level. The profit‑maximising wage is where Marginal Factor Cost (MFC) = MRP.
• Trade unions / collective bargaining: Workers negotiate a wage above the competitive equilibrium, creating a wage floor. If the union‑set wage exceeds the market‑clearing level, a surplus of labour (unemployment) may result.
• Minimum‑wage legislation: A statutory floor acts like a union‑induced wage. Its impact on employment depends on whether the set minimum is above or below the competitive equilibrium wage.

3. Types of Labour Mobility

• Geographic mobility: Moving between regions, cities or countries.
• Occupational mobility: Switching from one occupation to another.
• Skill mobility: Up‑skilling or down‑skilling to match changing market demand.

3.1 Factors Influencing Geographic Mobility

1. Transport and relocation costs – high moving expenses discourage relocation.
2. Housing market conditions – availability and price of housing affect willingness to move.
3. Family and social ties – strong local networks act as a barrier.
4. Legal/immigration restrictions – work permits, visas, residency rules.
5. Information asymmetry – lack of knowledge about job vacancies elsewhere.

3.2 Factors Influencing Occupational Mobility

• Education and training – access to relevant qualifications.
• Transferability of skills – ease with which existing skills apply to a new occupation.
• Labour‑market institutions – union rules, professional licensing, certification requirements.
• Wage differentials – expected earnings in the new occupation versus the current one.
• Risk aversion – perceived uncertainty about success in a new field.

3.3 Factors Influencing Skill Mobility

• Availability of on‑the‑job training, apprenticeships and vocational programmes.
• Government policies on lifelong learning, subsidies for adult education and retraining.
• Employer willingness to invest in employee up‑skilling.
• Technological change that creates demand for new skill sets.

4. Push and Pull Factors for Mobility

5. Economic Modelling of Mobility Decisions

The decision to move can be expressed as a comparison of expected net benefits:

$$\Delta U = (W_{\text{new}} - C_{\text{move}}) - W_{\text{current}}$$

• W_new – expected wage after moving (including any anticipated wage growth).
• C_move – total moving costs (financial, psychological, opportunity‑cost of time).
• W_current – current wage.
• If ΔU > 0, a rational worker will choose to relocate; if ΔU ≤ 0, they stay.

6. Policy Implications (Linking Theory to Mobility)

• Reduce transport and housing costs (e.g., subsidised commuter passes, affordable housing) to boost geographic mobility.
• Invest in vocational training, apprenticeships and lifelong‑learning schemes to enhance occupational and skill mobility.
• Relax restrictive immigration, licensing and professional‑registration rules to broaden the effective labour supply.
• Improve labour‑market information systems (online job portals, career guidance) to cut information asymmetry.
• Use targeted wage subsidies or tax credits to encourage movement into high‑need regions or occupations.