Lump of labour fallacy
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In economics, the lump of labour fallacy is the misconception that there is a finite amount of work—a lump of labour—to be done within an economy which can be distributed to create more or fewer jobs.[1][2] It is also known as the lump of jobs fallacy, fallacy of labour scarcity, fixed pie fallacy, and the zero-sum fallacy—due to its ties to zero-sum games. The term "fixed pie fallacy" is also used more generally to refer to the idea that there is a fixed amount of wealth in the world. This and other zero-sum fallacies can be caused by zero-sum bias.[3]
It was considered a fallacy in 1891 by economist David Frederick Schloss, who held that the amount of work is not fixed.
The term originated to rebut the idea that reducing the number of hours employees are allowed to labour during the working day would lead to a reduction in unemployment. The term is also commonly used to describe the belief that increasing labour productivity, immigration, or automation causes an increase in unemployment. Whereas opponents of immigration argue that immigrants displace a country's workers, this may not be true[editorializing], as the number of jobs in the economy is not fixed: it is possible that immigration could increase economic activity to such an extent that more new jobs are created than the immigrants themselves go on to occupy.[4]
Early retirement
[edit]Early retirement has been used to induce workers to accept termination of employment before retirement age following the employer's diminished labour needs.
In an editorial in The Economist a thought experiment is proposed in which old people leave the workforce in favour of young people, on whom they become dependent for their living through state benefits. It is then argued that since growth depends on having either more workers or greater productivity, the society cannot really become more prosperous by paying an increasing number of its citizens unproductively. The article also points out that even early retirees with private pension funds become a burden on society as they also depend on equity and bond income generated by workers.[5]
Criticism
[edit]There have been critiques of the idea that the concept is a fallacy. Arguments include that Schloss' concept is misapplied to working hours and that he was originally critiquing workers intentionally restricting their output, and that John Maynard Keynes believed shorter working hours could alleviate unemployment.[6]
See also
[edit]- Indivisibility of labour
- Labour (economics)
- Luddite fallacy
- Parable of the broken window
- Robot tax
- Technological unemployment
- Working time
- Zero-sum bias
References
[edit]- ^ "Examining the "Lump of Labor" Fallacy Using a Simple Economic Model". Federal Reserve Bank of St. Louis. 2 November 2020.
The lump of labor fallacy is the assumption that there is a fixed amount of work to be done. This assumption can create anxiety about new entrants to the labor market and automation. This article provided two strategies for thinking about labor. First, because labor is a valuable resource, jobs lost in one industry due to technological advance will usually be absorbed by other (expanding or new) industries. Second, the size of the economic pie is not fixed—it grows. As the circular flow model shows, when workers are added to the economy, the additional income they earn is spent on goods and services, which increases demand for those goods and services and for the labor that produces them. As a result, labor is not a fixed lump. Rather, labor is determined by the underlying demand for the goods and services produced by the labor. In the long run, the number of jobs will increase with the size of the labor force and the economy.
- ^ Krugman, Paul (7 October 2003). "Lumps of Labor". New York Times.
Economists call it the lump of labor fallacy. It's the idea that there is a fixed amount of work to be done in the world, so any increase in the amount each worker can produce reduces the number of available jobs. (A famous example: those dire warnings in the 1950's that automation would lead to mass unemployment.) As the derisive name suggests, it's an idea economists view with contempt, yet the fallacy makes a comeback whenever the economy is sluggish.
- ^ "Economics A-Z: terms beginning with L". The Economist. Retrieved 21 December 2016.
- ^ Cooley, Laurence; Farrant, Macha; Sriskandarajah, Dhananjayan (November 2005). "Selecting wisely: Making managed migration work for Britain". Institute for Public Policy Research. Archived from the original on 11 March 2007. Retrieved 16 September 2006.
- ^ Buttonwood (11 February 2012). "Keep on trucking: Why the old should not make way for the young". The Economist.
- ^ Walker, Tom (September 2007). "Why Economists Dislike a Lump of Labor". Review of Social Economy. 65 (3): 279–291. doi:10.1080/00346760701635809. JSTOR 29770416.