Commentaries (some of them cheeky or provocative) on economic topics by Ralph Musgrave. This site is dedicated to Abba Lerner. I disagree with several claims made by Lerner, and made by his intellectual descendants, that is advocates of Modern Monetary Theory (MMT). But I regard MMT on balance as being a breath of fresh air for economics.
Wednesday 4 August 2010
The lump of labour fallacy rears its ugly head again.
The U.K. government has recently announced a relaxation of the “retirement at 65” rule. Which means that more oldies will work longer. Which, entirely predictably, has meant that a number of lump of labour fallacy enthusiasts have piped up. That is they claim that more oldies filling vacancies means fewer jobs for youths.
The first flaw in this argument (which is quite separate from the lump of labour fallacy) is that youths to a significant extent complement rather than compete with oldies. That is, the two groups tend to fill different vacancies.
But even if the characteristics of oldies and youths are IDENTICAL, there still isn’t a problem. Reason is that an expanded labour force means demand can be bumped up (quicker than you can say “budget deficit”) which results in the extra labour being employed. Problem solved.
The U.S. as imported labour at the rate of about a MILLION people a year for the last TWO HUNDRED YEARS ! How did this VAST additional supply of labour find work? Mystery, isn’t it? At least it’ll be a mystery for those who adhere to the lump of labour fallacy.
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"It is sometimes argued that _____1_____ is necessary to cushion the impact of the loss of jobs due to _____2_____. Claims that _____2_____ will reduce job opportunities are based on the false premise that society has only a fixed number of things to be done or a limited variety of products to be made and workers in excess of those required to meet these needs will be idle.
ReplyDelete"Nothing, of course, could be further from the truth. People's _____3_____ are unlimited; it is only our capacity to _____4_____ that is limited by our ability to ____5______."
1. __________
2. __________
3. __________
4. __________
5. __________
Abstract: The lump-of-labor fallacy has been called one of the "best known fallacies in economics." It is widely cited in disparagement of policies for reducing the standard hours of work, yet the authenticity of the fallacy claim is questionable, and explanations of it are inconsistent and contradictory. This article discusses recent occurrences of the fallacy claim and investigates anomalies in the claim and its history. S.J. Chapman's coherent and formerly highly regarded theory of the hours of labor is reviewed, and it is shown how that theory could lend credence to the job-creating potentiality of shorter working time policies. It concludes that substituting a dubious fallacy claim for an authentic economic theory may have obstructed fruitful dialogue about working time and the appropriate policies for regulating it.
Why economists dislike a lump of labor: tinyurl.com/lumpoflabor
According to Tom Walker’s paper “Why Economists Dislike a Lump of Labor” (Review of Social Economy, p.286), Chapman did not propose reduced work time as a job creation measure. That is, Chapman did not actually dispute the lump of labour idea.
ReplyDeleteHis main point seems to have been that people would use the benefits of technological progress to work shorter hours, rather than work more or less constant hours with a view to the increased incomes that derive from those longish hours. That was a prediction that has turned out to be more wrong than right: that is, people have chosen to use the benefits of technology mainly to increase their incomes rather than to increase their leisure.