In economics, the lump of labour fallacy is the idea that there is a fixed amount of work - a lump of labor - 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 D.F. Schloss, who held that the amount of work is not fixed.
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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 cause an increase in unemployment. Whereas some argue immigrants displace domestic workers, others believe this to be a fallacy by arguing that the number of jobs in the economy is not fixed and that immigration increases the size of the economy, thus creating more jobs.
The lump of labor fallacy is also known as the lump of jobs fallacy, fallacy of labour scarcity, fixed pie fallacy, or the zero-sum fallacy - due to its ties to zero-sum games. Some economics studies have noted criticism and complexities with the fallacy claim.
Immigration
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").
However, skilled immigrating workers can bring capabilities that are not available in the native workforce, for example in academic research or information technology. Additionally, immigrating workforces also create new jobs by expanding the economy and creating further jobs either directly by setting up businesses (therefore requiring local services or workforces), or indirectly by an increased population. As an example, a greater population that needs to buy more groceries will increase demand on shops and therefore require additional shop staff.
Employment regulations
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).
Many economists contend that such proposals are likely to be ineffective, alleging that 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.
Early retirement
Early retirement has been used to induce workers to accept termination of employment before retirement age following the employer's diminished labour needs. Government support for the practice has come from the belief that this should lead to a reduction in unemployment. The unsustainability of this practice has now been recognised, and the trend in Europe is now towards postponement of the retirement age.
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.