Lump of Labor Fallacy: What it Means, How it Works

What is the Lump of Labor Fallacy

The lump of labor fallacy is the mistaken belief that there is a fixed amount of work available in the economy, and that increasing the number of workers decreases the amount of work available for everyone else.

The fallacy begins with the faulty assumption that an economy can only support so many jobs—i.e. a fixed lump of labor. It is then applied to policy issues such as immigration: allowing more immigrants decreases jobs available for native workers. Economists regard this reasoning as fallacious because many factors impact required labor levels in an economy. For example, increasing employment can expand the overall size of the economy, leading to further job creation. In contrast, reducing the amount of labor employed would decrease economic activity, thus further decreasing the demand for labor.

The lump of labor fallacy is also known as the "fallacy of labor scarcity," "lump of jobs fallacy," "fixed pie fallacy," or "zero-sum fallacy."

Breaking Down Lump of Labor Fallacy

The lump of labor fallacy originated to refute claims that reducing working hours would reduce unemployment. Companies that cut hours for full-time workers would need to hire additional workers to perform the remaining quantity of work left unperformed.

In 1891, English economist David Frederick Schloss noted that many workers and employers believed there was a fixed amount of work in an economy, and he described this thinking as the "theory of the Lump of Labor" fallacy. Yet policy decisions are often made based on the faulty reasoning that the quantity of labor is fixed. Notably, France in 2000 restricted regular working hours to 35 per week to alleviate unemployment.

Lump of Labor Fallacy and Immigration

The lump of labor concept was originally applied to studies of immigration and labor, specifically the assumption that given a fixed amount of jobs, unfettered immigration would result in fewer opportunities for native-born workers. However, the immigration of more skilled labor may lead to the introduction of new capabilities that can add jobs to an economy, such as through the opening of new businesses.

Examples include technology, research, and specialty products and services consumed by both native and immigrant populations. New business creation increases demand for local services and labor, not only because of their existence but also because of any increases in population resulting from new job opportunities.

Lump of Labor Fallacy and Retirement

The lump of labor concept has been used, especially in Europe, to compel older workers to accept forced retirement before the legal retirement age. It was thought to be a solution to decreased labor needs at companies. However, it was found that making younger workers pay for the retirements of early retirees was counterproductive, as it removed productive individuals from an economy and made greater demands on the remaining workers.

The lump of labor concept has been used, especially in Europe, to compel older workers to accept forced retirement before the legal retirement age. It was thought to be a solution to decreased labor needs at companies. However, it was found that making younger workers pay for the retirements of early retirees was counterproductive, as it removed productive individuals from an economy and made greater demands on the remaining workers.