Lump of Labor Fallacy

The lump of labor fallacy is the assumption that the quantity of labor required in an overall economy is fixed. This assumption in regarded as fallacious, as the consensus view among economists today is that the quantity of labor demanded varies with respect to many factors. Foremost, these economists argue that employment of labor can expand the overall size of the economy, leading to further job creation. In contrast, reducing the amount of labor employed would decrease overall economic activity and thus further decrease the demand for labor. The lump of labor fallacy is also known as the "fallacy of labor scarcity," "lump of jobs fallacy," a "fixed pie fallacy," or a "zero-sum fallacy."

The lump of labor fallacy originated to refute claims that reducing working hours would also reduce unemployment. As the reasoning goes, the remaining quantity of work would be left undone, and firms would be required to hire additional workers. The fallacy also has application to claims that immigration decreases the amount of jobs available for domestic workers. Controversy remains concerning whether the assumption of a fixed quantity of labor is actually contrary to the economic reality. Notably, the Government of France acted in 2000 to restrict regular working hours to 35 per week, in an attempt to alleviate unemployment. The lump of labor fallacy was found to be fallacious in 1891 by English economist David Frederick Schloss, who found that the amount of work available to labor is not fixed.

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 job opportunities for native-born workers. Yet, the immigration of more skilled labor may lead to the introduction of new capabilities that actually add jobs to an economy, such as though the opening of new businesses. Some examples are technology, research, and specialty products and services consumed by both native and immigrant populations. New business creation has the effect of increasing demand for local services and labor, merely by their existence but also because of any increases in population that may result from new job opportunities.

The lump of labor concept has been used — especially in Europe — to compel older workers to retire earlier than they normally would by accepting termination before the legal retirement age. It was thought to be a solution to decreased labor needs at companies. Instead, 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 workers that remained.