Labour Market Imperfections

Economics: Edexcel A A Level, topic 6.2.3

Imperfections in the Labour Market

Lots of factors impact the labour market. This means that wages won't always be at the equilibrium wage.

Trade unions try to change the balance of power by forming an organisation of workers and dealing with employers as a group.
These negotiations are often called collective bargaining. 1000 workers negotiating together are usually more powerful than 1000 workers negotiating separately.
Critics argue that these unions disrupt the market, grabbing as much as they can in the short term, even if it blocks new technologies that could lead to economic growth in the long term.

There may be an asymmetry of information between employers and employees.
This means that employers may not realise the actual value of an employee to the firm.
This means that the employer may not pay them the correct wage according to their marginal revenue product.

Geographical immobility: not everyone can move to a different area for a job. Geographical immobility is the inability to change location for work.
E.g it may not be feasible to work in London if you are from Manchester.
Occupational immobility: it isn't always easy to switch to a new career if your skills are not transferrable. Occupational immobility is the inability to change careers.
E.g former industrial workers may not be able to move into a services-based role as they do not have the skills.

The government are introducing the Elizabeth tube line, running from Reading to Heathrow. What labour market imperfection is this trying to correct?
How is HS2 (a high speed rail network linking Manchester & London) most likely to make the labour market more efficient?