160 FAQ

'Mobility' is a term used to refer to the ability of factors of production - land, labor, and/or capital - to switch between uses in different industries (sometimes called 'sectors'). Land, for example, is a particularly immobile factor. Land used for farming can be used for a parking lot only after paying substantial costs to pave it - assuming that it's in an area where anyone might want to park, since agriculture usually occurs in rural ares. Unskilled labor is fairly mobile; sweeping floors at McDonald's (in the restaurant sector) is not a lot different from sweeping floors in a hospital (in the health care sector) or in a bank office (in the financial services sector). Most forms of skilled labor, on the other hand, are not particularly mobile. Their factor of production are specific to a particular sector. Gym teachers cannot easily become brain surgeons; investment advisors cannot easily become automotive engineers. These factors would incur a substantial cost to shift from one industry to another. As you might guess, then, mobility is a continuous variable - factors can have different degrees of it - rather than a yes/no variable where a factor totally is or totally isn't mobile.

Like labor, different forms of capital also have different degrees of mobility. Cash is the ultimately mobile form of capital - it can be moved from investment in one industry (through stocks or bonds) to investment in another sector's stocks or bonds with very little cost. Other forms of capital assets are also fairly mobile, such as computers or office buildings (the same office building that currently houses a law firm might tomorrow house a group of accountants, a small software firm, or the like). Some forms of capital are highly immobile: once you invest money in buying a steel plant, that money is not available for investment elsewhere until and unless you find a buyer for the steel plant, nor can you easily use the resources in the steel plant to produce, say, semiconductor chips. Railroad cars are another immobile asset; owning a bunch of railroad cars can't help you produce higher education services, health care, etc.

A Note on Terminology: When we refer to 'mobile' factors, we normally mean mobility between industries within a particular country. The exception to this is financial capital (cash), where references to 'capital mobility' normally refer to the ease with which capital can cross national borders in search of the highest rate of return.

'Liquidity' is refers to the ease with which a particular capital asset can be converted to cash. It too is a continuous variable, with some forms of capital more or less easy to convert than others. It is not the same as mobility - mobility refers to ease of conversion between use in different sectors of the economy - but the two are related. The most liquid forms of capital are, in descending order, cash, stocks and bonds and other forms of portfolio investment, precious metals, and then physical and fixed assets (machines and buildings). The first few things are highly liquid because you can always find buyers for them who will pay you a rate fairly close to what you paid for the asset in the first place. The further down the list you go, the less likely you are to find a buyer for it, and the more likely the price offered will be substantially below what you paid for the asset in the first place.

Highly liquid assets are fairly mobile; once I've turned it into cash, I can invest that cash in any sector that I choose. Highly mobile factors, on the other hand, may or may not be highly liquid. A personal computer is a highly mobile capital asset - the same laptop I use in the higher education sector can be used in the healthcare sector, the public services sector, the business world, or elsewhere - but it cannot be converted to cash as easily as a stock or bond can be, and the cash value I would get for a used laptop would be substantially below what I originally invested in purchasing that asset. Likewise, an office building that can be used for many different sectors of economic activity can't be converted into a hospital, chemical plant, or police station without substantial costs or investments.