The lump of labour fallacy, also called the fallacy of labour scarcity, occurs occurs when an assumption that a variable (such as labor) is fixed is false. That is, when a variable is mistakenly treated an indepedent variable when it is instead subject to endogenous change. In the case of other, possibly non-economic variables where there is not a commonly accepted name, such as the lump of X fallacy, the term lump of labour fallacy is often used.
Historically the term originated to denote an argument against the idea that reducing the number of allowed working hours reduces unemployment. Proponents of working-hour restrictions have not accepted this argument as true, though most modern economists do accept the argument. Additionally, in modern times, economists often use the term in other contexts--often to highlight errors of reasoning when ceteris paribus assumptions are counterfactual.
Application to employment regulations
This economic argument is commonly invoked against attempts to alleviate unemployment by restricting working hours. Such attempts sometimes assume that there is a fixed amount of work to be done, and that by reducing the amount that those 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. It remains the law in France, although rollback proposals have been floated by Raffarin. Some economists contend that such proposals are likely to be ineffective, alleging that there are usually substantial administration costs associated with employing more workers, such as recruitment, training, and management, that would increase average cost per unit of output that would reduce production, and ultimately lower employment.
This fallacy also occurs with variables other than labor. As an example, some critics have suggested that certain arguments justifying American military action in Iraq during the insurgency of 2003–2004 commit this fallacy [1]. An example of such an argument is implied by the statement: It is better for America to fight the terrorists on the streets of Baghdad than in the streets of New York. According to these critics, this statement implicitly assumes that the number of terrorists will remain constant and will eventually diminish as terrorists are killed off by military action in Iraq.
In 2000, Tom Walker published a critique and historical review of the "lump-of-labour fallacy" claim that showed that the claim itself is incoherent, inconsistent and ultimately spurious. The assertion that policies to reduce working time are based on a belief in a "fixed amount of work" is a straw man argument. Walker identified in the literature at least three conflicting "explanations" of how advocates of reduced working time supposedly commit the fallacy and noted that the only thing the various explanations have in common is their failure to identify an authoritative source for the fallacy claim.
Walker then traced the origin of the phrase and its application to working time policies to two different late 19th century authors, one of whom, D.F. Schloss, in 1892 disavowed any connection between his fallacy of "the Theory of the Lump of Labour" and the issue of the length of the working day. The other, John Rae, was an advocate of the eight-hour day who just didn't think that job creation was one of its benefits. Rae's 1894 argument about advocates basing their expectations of job creation on a fixed amount of work was carefully refuted by Charles Beardsley in 1895.
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