The “fixed lump of labor” fallacy never dies. This is the mistaken thinking that there are only a fixed number of jobs in an economy regardless of other economic conditions. Alternately, it is the assumption that the number of workers is static. These assumptions are false but people still make arguments based on them.
On an evening business news program a few days ago, the CEO of a major health care company asserted there is a shortage of 200,000 nurses in the nation. That sounded dramatic and a reporter asked the obvious question: How many nurses graduate each year? She apparently assumed that a shortage could be filled only by training new nurses.
What the CEO really was saying, however, was that at current salary levels and working conditions, health employers would like to have 200,000 more nurses than they do. But nursing, like elementary school teaching, is a profession in which hundreds of thousands of people have the basic required education but choose to work in other fields.
If nursing pay and working conditions were improved, many non-active nurses would brush up their credentials and go back into nursing. And, with higher wages, employers would find other ways to perform certain jobs for which they now would hire a nurse. Neither the number of nurses nor the number of nursing jobs is fixed in stone.
World War II offers an interesting example of how flexible the labor force can be. In 1938, the year before war broke out in Europe, the U.S. total labor force consisted of about 54.9 million people. Some 44 million had jobs, but more than 10 million were unemployed. The Armed Forces numbered 340,000.
In 1944, the last full year of the war, the number of employed civilians had jumped to about 54 million. Unemployment had dropped but was not eliminated, considering that 670,000 were jobless. The Armed Forces numbered 11.4 million. So the total labor force was 66 million instead of the 54.9 million that existed only six years earlier.
As the war broke out, some wondered how our country could staff the Army and Navy and still have workers to produce war materiel. After all, only 10 million unemployed people were available.
But in response to the war emergency — and to higher compensation benefits despite wage freezes — another 12 million people entered the labor force. Many were women who had been working in the home.
The French political left is besotted with fixed lump beliefs. The late-1990s Socialist government of Prime Minister Lionel Jospin introduced a 35-hour workweek. Nearly 3 million French people were out of work, and the idea was that reducing the number of hours any person could work would force employers to hire more people.
The measure was phased in over 2001 and 2002. Nevertheless, unemployment remains high — at about 1999 levels. Virtually every study conducted outside of the French government has concluded that the 35-hour week not only did not increase employment but it actually deterred investment in new plants and equipment.
One often hears the fixed lump argument in discussions of illegal immigration. Employers claim that they could not get enough roofers, masons, landscapers and meat-packers without hiring illegal immigrants.
Like the health care CEO, they really mean they could not get the number of workers they want at the wages they want to pay. If they paid more, they would find more citizens and legal residents willing to take the jobs. At the same time, fewer jobs would be offered at higher wages.
If many millions of illegal immigrants were somehow whisked away, the U.S. economy would be very different. Employment would be lower and wages somewhat higher, especially for low-skill jobs. Output of goods and services would be lower. So would consumption since illegal immigrants consume as well as work. There would not, however, be large herds of geriatric cattle and hogs wandering in rural areas because no one was willing to slaughter them. Nor would houses collapse of rot because of a lack of roofers.
A final example of fixed lump confusion comes from the people who believe that the war on terror will be won when the last terrorist is killed.
We have killed many terrorists in the last five years. Experts agree, however, that there are many more terrorists now than in 2001. Wages are not high on the list of incentives for people to become terrorists, but many apparently respond to other motivations. We might consider their choice warped or evil, but once again the fixed lump assumption falls flat.
© 2006 Edward Lotterman
Chanarambie Consulting, Inc.