Definition
Labour mobility is the capacity of workers to move from one occupation, trade, or location to another in response to differences in opportunity. Smith treats it as a basic condition of a functioning labour market — without it, wages do not equilibrate, shortages persist alongside surpluses, and the division of labour cannot reach its potential.
The eighteenth-century English Settlement Acts are Smith's working example. A pauper who left their home parish could be returned to it; a labourer who tried to move to a town where work was available could be expelled. The result, in Smith's reading, was a labour force locked in place while opportunity moved around it.
Why it matters
How it works
A market wage is the price at which the supply of labour in a trade or region equals the demand. Mobility is the mechanism by which the market reaches that price. Workers in a low-wage place have reason to move to a high-wage place; workers in a declining trade have reason to retrain into a growing one. The movements equilibrate prices and reallocate effort to where it is most useful.
When mobility is blocked, the equilibrating mechanism fails. Wages stay low where labour is trapped; they stay high where labour cannot arrive. Producers facing artificial shortages either pay above-market wages or curtail output. Producers facing artificial surpluses pay below-market wages with no fear that workers will leave. Both sides are worse off than they would be under mobility, but the institutional friction makes a third party's interest — the landed gentry's, in Smith's case — into the ruling consideration.
Modern parallels include occupational licensing that does not transfer across jurisdictions, non-compete clauses that lock workers to a single employer, housing policies that make it prohibitive to move to high-productivity cities, and immigration regimes that bind a worker's visa status to a single firm. The mechanism Smith identified — friction reducing the workers' outside options and therefore their wages — operates in each case.