How do labour market failures occur?

A-Level: Economics

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Labour market failures occur when the market forces of demand and supply don’t result in an efficient allocation of resources. Labour market failures occur in a number of forms. Unemployment is the most obvious; unemployment means that the labour markets are not clearing, so some of those willing and able to work cannot get a job. The existence of unemployment means that a country is not making all that it is capable of. It will not be producing on its PPC and so won’t be achieving, productive efficiency. The extent to which unemployment causes labour market failure is influenced by the number of people who are out of work. The longer someone is unemployed, the more they get out of touch with the skills required and the greater the risk they may give up hope of getting a job.
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