Exploring the consequences of unemployment in its different forms
Occupational immobility happens when there is a significant change in the labour market, such as deindustrialisation, but you cannot change jobs due to the different skill sets and education required. It is a term used to describe a situation where an individual or a group of people cannot switch professions and are in a state of unemployment. This could happen due to various reasons, including the four main types of unemployment: structural, cyclical, frictional, and classical. Voluntary unemployment, such as retirement, is another primary type of unemployment. Still, it will not be used here as it would not cause market failure unless most people retire and quit their jobs, which is obviously highly unlikely.
Occupational immobility occurs when barriers prevent active members of the labour market from moving from one job to another. Immobility is a cause of labour market failure and can create persistent long-term structural unemployment, where people remain unemployed due to a significant industry shift in the labour market. One attempted solution to this is the Apprenticeship Levy which is placed on medium to large businesses with an annual pay bill of three million or more, who must pay 0.5% of their revenue into a general fund which can be used to promote the development of specialised employable skills. They must also send their employees to professional development courses relevant to their field and help them learn skills that will make them more effective and efficient at their job. This element of compulsion can help overcome the frequent issue in the field of economics, which is the free-rider problem when firms who have invested in the human capital of their staff and have developed their skills into making them better workers find their valuable employees being ‘pinched’ or stolen by companies who do not do the same but by offering higher wages and other luxuries, benefit from the return.
The free-rider problem is an issue that applies to almost all markets in economics. It is where people who do not contribute to the cost of a particular service or good still benefit from the return, such as a person who lives in the UK who does not pay taxes still can access free healthcare through the NHS. Another case would be national defence, where someone who does not pay their taxes would not get any less protection from hostile countries than a person who pays thousands in income tax. On the other hand, this also means that anyone who pays more tax does not get extra protection, which balances out the problem of free riders and prevents market failure. However, this does not apply in the labour market, as the company that stole the valuable worker gained the benefit without contributing anything to the cost. At the same time, the business that invested in the human capital of their staff lost the entirety of their investment. This is the issue that the government attempted to solve by implementing the Apprenticeship Levy. In theory, it can be an effective way of improving human capital and teaching employees valuable and transferrable skills that they require in the fast-changing labour market of today’s modern economy.
However, in practice, the scheme is not as stable and is at risk of government failure, wherein the money invested in the project could become wasted. For example, in 2018, companies eligible for and participated in the Apprenticeship Levy were only able to access £200 million of an available £2 billion in levy funds. Statistically, this is only 10% of the promised funds. Furthermore, the quantity of new apprenticeships has decreased in recent years, even without the damage caused by the coronavirus pandemic. This could suggest that the Apprenticeship Levy could act as a deterrent to taking on apprentices, as they already have to pay the levy and do not want to pay an apprentice. In addition, some firms have complained that the quality of the training provided by training professionals is inadequate and does not add any value to the employee’s skill set. This reduces the incentive to send employees on development excursions, as they are simply spending money for their workers to waste their time not learning anything valuable. Employees themselves may feel that vocational qualifications remain undervalued in the labour market. Resultantly, their efforts may not help them move up in the labour market, although the more rigorous and practical T-level qualifications currently being developed and trialled may help to address this going forward.
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