Reasons for Market Failure and Its Notion - Essay Example

The idea is correlated with asymmetries in information, the structures of the market that are non-competitive as well as in the case of public goods. One real-life example of market failure is the immobility of labor. The main types of market failure include the presence of gaps in skills, the immobility of labor, and inequality (Riley, 2011).

Reasons for market failure

There are two types of labor immobility- occupational, geographical, and industrial. There are some imperfections in the market for labor that might lead to the failure of the market. For occupational labor mobility, the main cause of market failure is skilled do not match the newly available jobs. Often new jobs are available in the market but the available skills of the labor do not match the requirements. The second cause for occupational labor mobility resulting in market failure is long-term unemployment can lead to a loss of skills on the part of the laborers. If workers are not involved in work for the 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 for is barriers to entry into the market eg, professional bodies. Sometimes labor may not have the required skills to enter a market. In the 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.)

Consequences
The failure of the labor market can lead to structural unemployment, inflexibilities in the market of labor, continuous shortage of labor supply in some areas while surpluses in others, rising wages and inequality of income, widen regional disparity and unemployment which has both, economic as well as social costs (Economics online, n.d.).
Remedies

The government can divert investment in the education and training of personnel. This will induce the human capital in the total labor force. Employment subsidies can be provided in cases of long-term unemployment. Some additional spending can be allocated to new and advanced apprenticeships. Assistance can be provided financially for some groups to get on the housing ladder. Programs may be undertaken that will encourage the relocation of public as well as private sector businesses to move regions that are congested and look out for new areas. This will employment opportunities for the people of that area and their social well-being of them will improve. However, these solutions involve uncertainty. A detailed planning procedure should be followed before the implementation of the programs otherwise the whole planning structure will be in vain (International British School of Bucharest, 2009, p. 2). Read More