By Devika M, Deputy Editor
Lump of labour fallacy is an assumption that there is a fixed amount of work in an economy or that the quantity of labour demanded overall is fixed. This assumption is regarded as fallacious by economists and hence it’s called a fallacy.
This fallacy is extremely popular. It is used to support the following common beliefs:
- “Immigrants take our jobs”
- Growth of technology – right now it’s AI- will cause unemployment
Why is it considered a fallacy?
The economy is more dynamic than perceived. To put it simply, when migrants “take” a native person’s job, they also add to the aggregate demand of the economy by spending on goods/services from the wages they recieve. This means the additional demand will also create jobs by way of more production. Another way of looking at this could be; most migrants “take” up jobs that most native workers don’t wish to do (because it’s low wage or low skilled) and this might actually add more workers. For example, consider the following scenario. You are unable to find a lawn mower for your garden but a migrant worker is willing to do that work at a low wage, this means you now have more free time to work, which will enable you to spend more.
Let’s see how this works when technology changes. When automated looms were introduced, it enabled people to buy clothes at cheaper prices which meant that people had more disposable income to spend on other goods like scarves or other luxury items which created jobs in that sector. The fallacy that technology creates unemployment is also called the Luddite fallacy. It comes from Luddites- a group of weavers who broke into factories and destroyed textile machines fearing automation.
Historical uses:
The fallacy has been previously used by many governments.
- Some advocates of restricting work hours believe in the Lump of Labour fallacy. The popular ‘35-hour workweek” labour reform of the French government employed this fallacy in their policy to decrease unemployment. The reasoning used was that reducing the amount of work for those who are already employed means the remaining amount of work will then go to the unemployed. However, the results were mixed as many believed the rise in recruitment costs actually made it harder for firms to hire.
- Those who argue for early retirement ages also believe in this fallacy. The reasoning provided is that older people make it difficult for younger ones to join the workforce, thus increasing unemployment. Again, it’s based on the fallacy that work amount is fixed. Many results have shown this has decreased unemployment.
References:
https://insights.som.yale.edu/insights/insights-animation-the-economic-benefits-of-immigration
https://www.investopedia.com/terms/l/lump-of-labour-fallacy.asp
https://www.economicshelp.org/blog/21819/concepts/lump-of-labour-fallacy-immigration/
Arthashastra 