Lump of labour fallacy

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 false belief that increasing labour productivity, automation, immigration, or women's participation in the workforce causes an increase in unemployment. The facts show that just like the amount of labor is not fixed, neither is the size of the economy (fixed pie fallacy) and as more work is done, the economy grows. ^[4]

Automation/Technological change

While many workers fear that automation or artificial intelligence will take their jobs, history has shown that when jobs in some sectors disappear, jobs in new sectors are created.^[1] One example is the United States, where a century of increasing productivity and technological improvements changed the percentage of Americans employed in the production of food from 41% of the workforce in 1900 to 2% in 2000.^[1] This change did not result in large-scale unemployment, because workers found jobs in newly created industries (like farm equipment manufacturing).^[1] Another way to state this is that automation or technological improvements free workers to move to new growing industries.^[1]

Immigration and women in the workforce

While many people worry that new immigrants to their country will reduce employment (the same way US men in the 1960's worried that women's entry into the workforce would lead to massive unemployment) the data show that this did not happen because new workers earn money which they spend with the result being that the total economy grows and more people are employed.^[5]

Early retirement

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.^[6]

Criticism

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.^[7]

References

^ ^a ^b ^c ^d ^e "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.
^ Krugman, Paul (6 February 2024). "Trump, Immigration and the Lump of Labor Fallacy". New York Times. So this seems like a good time to talk about the lump of labor fallacy, how we know it's a fallacy and why it's a zombie — an idea that refuses to die and instead keeps shambling along, eating people's brains. ... No, A.I. and automation, for all the changes they may bring, won't ultimately take away jobs, and neither will immigrants.
^ 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.

External links

Zero sum fallacy in stock trading

[StLouisFed_2020-11-02-1] "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.

[NYT_Krug_2003-10-07-2] 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.

[3] "Economics A-Z: terms beginning with L". The Economist. Retrieved 21 December 2016.

[4] 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.

[NYT_Krugman_2024-02-06-5] Krugman, Paul (6 February 2024). "Trump, Immigration and the Lump of Labor Fallacy". New York Times. So this seems like a good time to talk about the lump of labor fallacy, how we know it's a fallacy and why it's a zombie — an idea that refuses to die and instead keeps shambling along, eating people's brains. ... No, A.I. and automation, for all the changes they may bring, won't ultimately take away jobs, and neither will immigrants.

[KeepOT-6] Buttonwood (11 February 2012). "Keep on trucking: Why the old should not make way for the young". The Economist.

[7] 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.

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