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Market Failure - Essay Example

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In the notion the inefficient distribution of services as well as goods by the system of free market are described. In the notion it is implied that one of the participant of the market can end up in better off…
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Market Failure
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Market Failure

Download file to see previous pages... One real life example of market failure is immobility of labor. The main types of market failure include the presence of gaps in skills, immobility of labor and inequality (Riley, 2011).
There are two types of labor immobility- occupational, geographical and industrial. There are some imperfections in the market for labor which might lead to failure of market. For occupational labor mobility the main causes of market failure is skills do not match for the new jobs that are available. Often new jobs are available in the market but the available skills of the labor do not match the requirements. The second cause for the occupational labor mobility resulting in market failure is long term unemployment can lead to loss of skills on the part of the labor. If workers are not involved in work for a long term may be due to unemployment or for some other reason, they may lose their efficiency and their skills can be lost. The third cause that can be accounted is barriers to entry into the market eg, professional bodies. Sometimes a labor may not have the required skills to enter into a market. In case of geographical labor mobility the causes include differences in the price of houses in different regions, social bonding and family and differences in the cost of living (Revision on Labor Market Failure, n.d.)
The failure of labor market can lead to structural unemployment, inflexibilities in the market of labor, continuous shortage of labor supply in some areas while surpluses in the others, rising wage and inequality of income, widens regional disparity and unemployment which has both, economic as well as social costs (Economics online, n.d.).
The government can divert investment in education and training of personnel. This will induce the human capital in the total labor force. Subsidies in employment can be provided in cases of ...Download file to see next pagesRead More
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