The lump of labor fallacy

Some argue that immigrants “steal” jobs; others that elderly people should retire to make room for the young. People apparently think that the amount of work and number of jobs is finite. In economics this line of thinking is called the lump of labor fallacy: work and jobs are not finite. Most repudiations focus on statistics like “when women joined the workforce in huge numbers this did not cause a strong increase in unemployment.” This article will instead focus on the underlying mechanisms why this common thought is a fallacy.

Earners are spenders

The first mechanism is that working people earn income that they spend. When people spend their money, they create jobs for others in shops, restaurants and all across the economy. Working immigrants just add to the total level of the economy, and might even create room for jobs locals want, while doing jobs locals do not want. And considering retirees, most of them have a higher income when working than when retired. The difference creates room for more jobs for others.

Government can do more

The second mechanism is higher tax income, because people that work pay more income tax. As we concluded they spend more too, VAT will be higher too. The government can hence spend more on infrastructure, education, health care and other government services creating even more jobs. All thanks to migrants and people not retiring.

Someone has to do it

Lastly, when people retire they expect to receive a (state) pension. Because you cannot eat the bricks you invest in, there still needs to be someone in the present to earn the income to be payed out to retirees. The higher this burden, the less likely young people take on (official) jobs. Here migrants might even help too. The more numerous the people that work, the easier it is to squeeze capital income from the investments of pension funds.

To sum up, there are three mechanisms that explain why one person giving up his job does not create a job for another. 1) People that earn an income spend more and in that way create jobs for others; 2) When more people work, government has deeper pockets, can spend more and in that way creates more jobs; 3) Someone has to earn the income a retiree expects anyway and the higher the burden, the fewer the jobs.