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. It was considered a fallacy in 1891 by economist David Frederick Schloss, who held that the amount of work is not fixed.[1]
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, 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.[2][3]
The lump of labor fallacy 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.[4] This and other zero-sum fallacies can be caused by zero-sum bias.
The lump of labour fallacy has been applied to concerns around immigration and labour. Given a fixed availability of employment, the lump of labour position argues that allowing immigration of working-age people reduces the availability of work for native-born workers ("they are taking our jobs").[5]
However, labor markets, both for skilled and unskilled workers, are capable of adjusting to increases in supply: the influx of more immigrant workers will expand the labor pool, exerting downward pressure on wages and balancing the supply and demand for labor. In other words, a rise in the labor supply actually results in the creation of new jobs, directly contradicting the fallacy.
Additionally, immigrating workforces also create new jobs by expanding demand, thus creating more jobs, either directly by setting up businesses (therefore requiring local services or workers), or indirectly by raising consumption. As an example, a greater population that eats more groceries will increase demand from shops, which will therefore require additional shop staff.[6]
Advocates of restricting working hours regulation may assume that there is a fixed amount of work to be done within the economy. By reducing the amount that those who are already employed are allowed to work, the remaining amount will then accrue to the unemployed. This policy was adopted by the governments of Herbert Hoover in the United States and Lionel Jospin in France, in the 35-hour working week (though in France various exemptions to the law were granted by later centre-right governments).[7]
Many economists agree that such proposals are likely to be ineffective, because there are usually substantial administrative costs associated with employing more workers. These can include additional costs in recruitment, training, and management that would increase average cost per unit of output. This overall would lead to a reduced production per worker, and may even result in higher unemployment.[8]
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.[9]
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, that prominent economists like John Maynard Keynes believed shorter working hours could allieviate unemployment, and that claims of it being a fallacy are used to argue against proposals for shorter working hours without addressing the non-economic arguments for them.[10]