The lump of labour fallacy – again revisited

One of the topics in the news recently has been immigration. Net immigration figures appear to have fallen, fewer students than first thought are staying after completion of their degree and some non-British EU citizens are going back to the continent. Debates on all media repeatedly use the argument that surely this must lead to higher wages for British workers as the demand for labour meets a reduced supply. However, this ignores some of the dynamics in the economy – and is known as the “lump of labour fallacy”.

The argument is that the reduction in immigration would lead to a decrease in supply of labour and thereby an increase in wages. While this might be true in some selected professions for a short time, this argument does not consider the fact that productivity, i.e. how much a worker produces in a given amount of time, depends on the worker’s skills and the equipment they are working with, whether the goods they produce are in demand and at what price they become unaffordable. Productivity is ultimately what drives how much an employer can pay their employees. The argument also ignores the fact that more people demand more things, drink more beer in pubs, buy more food, require more repairs of more cars, etc, etc – and fewer people are doing less of this.

The lump of labour fallacy occurs because it is difficult to imagine that the world changes dynamically. The numbers of jobs will be different once the migrants are gone. Or the other way round: The number of jobs will go up when new migrants arrive. In addition to the simple increase in demand caused by the needs of immigrants, they may also have skills not in sufficient supply in the country they move to. With additional skills immigrants may unlock jobs for domestic workers. They could be on the more advanced end of technology: An immigrant innovator who suddenly needs a number of designers, manufacturing workers, etc, or just the arrival of a master mechanic in a small town or large village setting up a garage, enabling local workers who were not able to invest or find work.

However, as always things are more complicated. There may be areas, villages, or small towns where these dynamics do not work. Where low and medium skilled workers are replaced by cheaper immigrants, where the young immigrants and their children require school places, GP time and housing which are not easily made available. And this does not address questions of changes in local culture, which some people may find offensive or irritating.

It is important that decision makers at a national level have both these effects in mind when they make decisions. The overall additional resources provided by migrants, the additional jobs created by their very presence – in an ageing society which needs young workers to care for older people, to pay taxes to fund the NHS, etc – but also those people who are not able to benefit from this overall opportunity.

Photo: A construction worker working on a 18th century cottage, Ulrike Hotopp