Immobility/Unemployment Essay

Topics: Economics, Macroeconomics, Keynesian economics Pages: 5 (1395 words) Published: May 3, 2014
a) Occupational immobility has a greater impact on the economy than geographical immobility (10)

Occupational immobility is a factor of immobility where there are barriers to the movement of factors of production between different sectors of the economy such as from the primary sector to the tertiary sector. These barriers lead to unemployment or an inefficient labour force.

Geographical immobility is another factor immobility which has barriers preventing people from moving from one area to another to find work.

Geographical immobility can also has a larger impact on the economy as a whole than occupational immobility. Geographical immobility prevents the physical transfer of factors of production while occupational immobility simply prevents the movement of factors of production to more efficient methods of production. These barriers could lead to a fall in employment since people would not be able to move between countries in order to find jobs that they are qualified. This fall in employment leads to a fall in output of goods and services. Goods and services produced decrease as the labour force is smaller due to the unemployment which means that the labour force is less efficient than it would be with more workers.

Geographical immobility also leads to a rise in government spending and a fall in tax revenue which causes issues for the government. Government spending increases as more people are unemployed which means that the government has to pay more unemployment benefits. The unemployed also does not pay income tax which means that the government receives less tax and thus less revenue to spend. This causes issues due to the fact that the government could be using the money that they are spending on unemployment benefits in order to increase the amount of merit goods within the economy and now the government has to cut spending due to the cut in revenue. Finally, unemployment overall is a failure to achieve the macroeconomic objective of low unemployment.

However occupational immobility can impact the economy due to various reasons. Occupational immobility can affect various stakeholders such as producers. If producers find that producing their goods in the tertiary sector is more efficient and creates a larger output than producing their goods in the primary sector does, they are more likely to move their factors of production to the tertiary sector such as the firms labour force, however due to occupational immobility the firm will not be able to move their labour force between sectors of economy. This could potentially lead to a fall in economic growth much like geographical immobility. due to the fact that the firm is not producing as efficiently as possible. As a result of this the firm’s output is not as high as it can be.

Occupational immobility not only affects producers but also consumers. As mentioned before, occupational immobility leads to a lower output for firms. Due to this low output, consumers have less goods and services to choose from and purchase. The lack of options leads to a fall in consumer spending since there are fewer goods and services for consumers to purchase and spend their disposable income on. This fall in spending leads to a fall in economic growth and Gross Domestic Product (GDP).

In conclusion, geographical immobility causes a greater impact on the economy than occupational immobility does as it not only affects economic growth but it also has a larger effect on unemployment and government spending while occupational immobility simply affects GDP and economic growth.

b) Demand-side policies are the most effective solution to reduce unemployment (15)

Demand side policies include the fiscal policy which relates to government spending and taxation rates. Expansionary fiscal policy is when the government lowers income taxes in order to increase consumption. Expansionary fiscal policy also lowers taxes to firms in order to encourage investment as a method...
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