Lump of Labor Fallacy - Explained
What is the Lump of Labor Fallacy
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What is the Lump of Labor Fallacy?
The lump of labor fallacy is a belief that the amount of labor available in an overall economy can be distributed to create fewer or more job openings. It holds that there is a fixed amount of labor required in the entire economy. However, economist David Frederick Schloss in 1891, disputed the assumption holding that the quantity of labor is not fixed. Other economists, on the other hand, argue that the amount of labor on demand varies depending on many factors. They also believe that there is a likelihood of more job creation because of the current expansion of labor employment in the overall economy. Another term for the lump of labor fallacy is lump of jobs fallacy or fallacy of labor scarcity.
How Does the Lump of Labor Fallacy Work?
The term lump of fallacy originated to refute the idea that reducing employees working hours would result in unemployment reduction. Economists also use this term to describe the assumption that increasing immigration, labor productivity, or automation leads to a rise in unemployment. However, the opponents of immigration reason that it is a fallacy to believe that immigrants will displace the workers of a county. According to them, the amount of jobs in the economy is not fixed. That immigration contributes to the increase in the economy's size. They also believe that immigration increases innovation, productivity, including the overall activities in an economy. It also reduces business closure and incentives for off-shoring hence creating more job opportunities.
The lump of Labor Fallacy vs. Immigration
The lump of labor concept has been applied to study immigration and labor, more so on the assumption that unrestricted immigration is bound to reduce the few jobs available for native workers. Whereas, more skilled labor immigration may result in the introduction of new skills that may open up additional job opportunities in an economy. A good example is when these immigrants open up new businesses like research, technology, specialty services, and products that the immigrant and native population consume. The business enterprises create job opportunities hence increasing the demand for both local labor and services. Note that this move may lead to demand for local labor and services, not just by their existence. It could also be because of the increase in population due to new job openings.
Those who support the concept of restricting working hours regulations assume that there is a fixed amount of work in an economy. They believe that by reducing the number of working hours of those already in employment may create some hours for the unemployed. The idea is that if you reduce the working hours, you can accumulate the remaining to provide work for the unemployed.
The lump of Labor Fallacy vs. Early Retirement
Some governments have applied early retirement to persuade workings into accepting early retirement following reduced employees labor needs. Most governments have supported this move by believing that it will reduce unemployment. There is no doubt that there is uncertainty when it comes to this practice, and Europe is working towards postponing the retirement age. Applying for an early retirement scheme to create employment for young people makes the retirees dependent on their state benefits for a living. Also, there is an argument that because growth depends on the availability of greater productivity or more workers, there is no way the society can thrive by increasing the citizens unproductivity number. Another argument is that those who retire early with private pension funds also become a burden on society because they rely on bond and equity income that workers generate.
- What is the US Labor Force?
- Labor Force Participation Rate
- Establishment Payroll Survey
- Bureau of Labor Statistics
- Full Employment Equilibrium
- Okun's Law
- Issues with Measuring Unemployment
- Sticky Wage Theory (Economics)
- Implicit Contract Theory of Wages
- Efficient Wage Theory
- Adverse Selection of Wage Cuts Argument
- The Insider-Outsider Model
- Relative Wage Coordination Argument
- Natural Rate of Unemployment
- Labor Productivity - Explained
- Okun's Law
- How does U.S. unemployment insurance work?
- National Average Wage Index
- Job Openings and Labor Turnover Survey
- Labor Surplus Area - Explained
- Lump of Labor Fallacy - Explained
- Bureau of Labor Statistics
- ADP National Employment Survey
- Labor Theory of Value - Explained