The lump of labour fallacy is the contention that the amount of work available in an economy is fixed. But, most economists argue this belief there is a fixed number of jobs (or fixed number of hours) is usually incorrect.
- Fallacy – “Immigrants take jobs of native workers.”
- Why this is a fallacy – immigrants who gain work, also gain income to spend in the rest of the economy, creating new jobs. The number of jobs is not fixed. Immigration increases labour supply, but also increases demand for labour. Generally, immigration has no impact on the average unemployment rate.
Why the fallacy is incorrect
- If a country experiences net migration, then these new arrivals will gain jobs in the economy. Native workers may fear they lose out on getting a job to these new arrivals.
- However, these new workers also add to aggregate demand. If they get a job, they will spend their wages on goods and services, which creates additional demand and therefore additional jobs in the economy. These jobs are not highly visible because the extra spending filters throughout the economy. But, it will occur.
- In other words, immigrants tend to create as many new jobs as they fill. If the population expands, the number of available jobs does not stay constant, but increases.
- For example, in the 1950s and 60s, the UK experienced high levels of immigration, but this did not lead to unemployment. The economy stayed close to full employment as the new workers helped to increase the economic output. The US economy absorbed millions of new workers around the turn of the century, without increasing unemployment. In fact, it was the booming economy which attracted more migrants.
What about immigration in a time of unemployment?
- If an economy has high unemployment, and net migration – do immigrants cause unemployment in this case?
- The principle is the same. Immigrants may get certain jobs, but this doesn’t necessarily increase the overall unemployment rate. Ceteris paribus the new labour supply will have a similar affect on increasing demand for labour as increasing supply.
- The problem is that those who are unemployed may feel that they have missed out on a job because some vacancies go to migrants. But, the immigration itself is not the cause of unemployment. The cause of unemployment could be due to cyclical factors (recession) or structural factors (lack of relevant skills). See causes of unemployment
Is it possible immigration could actually cause unemployment?
- If migrants came to the UK and were willing to accept much lower wages than the national average, native workers may experience real wage unemployment. They don’t find work because they are not willing to work for the significantly lower wages, migrants are.
- This is unlikely given national minimum wage sets a floor for wage levels, though sometimes there are ways around labour market regulations, e.g. black market, self-employment.
- Another possibility is if immigrants gained jobs, but sent the majority of their wage back to their country of origin (remittances). In this case, the increase in UK aggregate demand would be limited. However, in practice, they will need to spend a relatively high percentage of their wage to live.
- Another possibility is if immigrants had significantly higher skill levels than native-born workers. In this case, employers needing to fill skilled work may prefer higher skilled migrants over native workers, and some of the unskilled workers may actually find it harder to gain work after net migration.
- However, the problem here is a lack of education and training rather than immigration.
Would sending migrants home create employment?
The other way of looking at this situation is to say, what would happen if recent migrants were told they had to leave? Would this create employment and solve unemployment?
If recent migrants were immediately sacked, it would create job vacancies. However:
- Firms would face uncertainty in having to find new workers. The loss of workers could lead to a decline in investment.
- A fall in the population would lead to a fall in demand, and this would lead to less consumption and less demand for labour.
- Some firms would argue without migrants they would find it hard to fill certain vacancies. (e.g. construction, health care)
Other evaluation points
- Available work is a factor in causing immigration. One of the main reasons for immigration is the expectation of finding work. For example, many come for guaranteed jobs in the NHS, where there is often a shortage of nurses and doctors. Many EU migrants come for short-term jobs like fruit picking – jobs which farmers often struggle to fill with native workers.
- Migration is cyclical. In periods of mass unemployment, net migration tends to fall. In a booming economy, net migration rises. Therefore, there is often a balancing aspect. For example, after Irish economic crash in 2008/09, there was a sharp fall in net migration due to a decline in construction jobs.
- Net migrants of working age tend to be net contributors to the government budget. This net migration improves tax revenues, which in theory could be used to improve skills of the unemployed.
Lump of labour fallacy also applies to
- Cutting the average number of hours in an economy. If workers average hourly contract is cut from 40 hours to 30 hours a week, this doesn’t necessarily create jobs.