Labor mobility economics

Have you ever wondered what it would be like to change jobs or work in another country? Not long ago, this daydream had to remain in this state. However, as governments around the world continue to relax restrictions on who can do what kind of work, the world has provided opportunities for qualified workers. Read on to understand how this change happened and how labor mobility really works.

What is labor mobility?

Labor mobility refers to the ease with which labor can flow within an economy and between different economies. It is an important factor in economic research because it focuses on how labor as one of the main production factors affects growth and production.

There are two main types of labor mobility: geographic and occupational. Geographical mobility refers to the ability of workers to work in a specific physical location, while occupational mobility refers to the ability of workers to change the type of work. For example, the movement of a worker from the United States to France illustrates the concept of geographic mobility. An auto mechanic changed his career to become an airline pilot, which embodies the concept of career mobility. (For related reading, please see: Get a financial job overseas.)

Why is geographic mobility important?

From the perspective of policymakers, geographic mobility may have an important impact on the economy of a particular country. This is because relaxing immigration requirements can do several things:

  • Increase labor supply. As more and more workers enter the economy, the general labor supply increases. The increase in labor supply accompanied by the stability of labor demand will reduce the wage rate.
  • Increase unemployment. Unless employers need more workers, the increase in labor supply may lead to labor surplus. This means there are more workers than jobs available. (For more information on this, see: Investigating Employment Report.)
  • Improve productivity. Not all labor added to the labor supply are unskilled workers. If the influx of labor brings professional skills to the workplace, they can increase productivity and may drive away existing employees who are less productive. (For related reading, please see: Economic indicator: Employee Cost Index (ECI))

Access to geographical liquidity is not just an economic issue. This may also be a matter of national sovereignty and government control. After all, the government also cares about security, and a completely open border means that the government is not sure who or what will enter their country. Although the increase in geographic mobility usually has a positive effect on the economy, it is also one of the primary goals that arouse the anger of citizens and their representatives. Immigration is already a hot topic in the United States and abroad.

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Geographical restrictions can be reduced in several different ways. Among countries, it is achieved through treaties or economic agreements. Countries can also increase the number of available worker visas or reduce the requirements for obtaining visas. For example, EU member states have fewer restrictions on labor mobility among member states, but they can still strictly restrict labor mobility from non-member states.

The effectiveness of improving geographical mobility will ultimately depend on individual workers. If there are no economic opportunities in different countries or in different regions of the current country, the likelihood of employees wanting to make changes is reduced.

Why is career mobility important?

How easy it is for employees to transfer from a job in a particular industry to another industry determines the speed of economic development. For example, if occupational mobility is zero, we are still hunter-gatherers because no one can become a farmer or expert.

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Several things can be done by relaxing restrictions on occupational mobility:

  • Increase labor supply in specific industries. Lower restrictions make it easier for workers to enter different industries, which may mean that it is easier to meet the demand for labor.
  • Lower wage rate. If it is easier for workers to enter a particular industry, then for a given demand, the supply of labor will increase, thereby reducing the wage rate until equilibrium is reached. (For more insights, see: Explore the minimum wage.)
  • Allow emerging industries to develop. If the economy is shifting to a new industry, there must be employees to run the business in that industry. A shortage of employees means that overall productivity may be negatively affected because there are not enough employees to provide services or work on the machines used to manufacture products. (For related reading, please see: Employability, labor and economy.)

Occupational mobility can be restricted through regulations. Licensing, training, or education requirements prevent the free flow of labor from one industry to another. For example, restrictions limit the supply of doctors because working in that particular industry requires specialized training and permits. This is why doctors can demand higher wages, because the demand for doctors plus limited supply increases the equilibrium wage. This shifts unqualified labor to less restrictive industries and maintains a low wage rate through a higher labor supply compared to labor demand.

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Labor mobility: two perspectives

Labor mobility affects workers on two levels: the overall level and the individual level.

At the individual level, increased labor mobility provides workers with opportunities to improve their financial situation. If workers are allowed to receive new job training, move or seek higher wages, they are more likely to work happily, which has a positive impact on productivity. Workers who will not be downgraded indefinitely to jobs with low wages or few benefits will continue to seek better positions, which also makes it easier for new industries to attract the most qualified applicants by offering better benefits.

The aggregate level refers to the economy as a whole. The degree of labor mobility will affect the speed at which the economy adapts to technological changes, the speed at which it can use its competitive advantage, and the way in which innovative industries develop. Restrictions on the flow of workers, both geographically and professionally, will make it more difficult for companies to hire productive workers, thereby slowing growth. At the same time, unrestricted labor can depress wages in certain industries and cause unemployment. (For more information, see: Competitive advantage is important.)

Bottom line

With the increase in labor mobility, the lives of global workers are also improving. As a general rule, when workers have less control over where they can move and what occupations they can apply for, they can find higher-paying jobs and improve their living conditions. At the same time, because workers have received better training and can hire suitable employees, the company has improved. The economy improves as productivity increases.

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