Lump Of Labor Fallacy

The lump of labor fallacy is the fallacy (the false notion) that the demand for labor in an economy is fixed over time. There are many economists in many different schools of thought...yet most would agree that the lump of labor fallacy is an inaccurate assumption to make about the economy.

There are many factors involved in how much labor is required in the economy, such as technology (either creating or replacing jobs), investment, economic growth (GDP), and more.

Claims that immigrants are “taking jobs” rather than contributing to and expanding the economy (which can create more jobs) is one example of where the lump of labor fallacy come in. Another interesting place it’s reared its head is with the timing of retirement for older workers. In parts of Europe, elderly workers were encouraged to retire early to give younger workers a better shot in the labor market, but because labor isn’t fixed, this theoretical fix for the labor market didn’t pan out in reality. Instead, the working population was reduced, and burdened with paying for more retirees. Oops.