Time to ditch the lump of labour fallacy

ANTHONY BUTLER: Labour and hospitals do not come in heaps and lumps

Immigrants add opportunities for employment and their taxes help the state extend services

First published in BusinessLive

25 AUGUST 2022

In difficult times, it is little wonder that people believe that the opportunities of others come at the cost of their own exclusion.

When we are under stress, we imagine a fixed stock of hospital beds, subsidised houses, and school places. When others occupy them, surely we are denied what we deserve?

The most consequential manifestation of such thinking in SA today concerns jobs. The “lump of labour” fallacy, first diagnosed more than 100 years ago, refers to the notion that there is a fixed amount of work in the economy. If someone else takes a job, surely it is denied to me, and to people like me?

This fallacy has driven decades of misguided policy experiments around the world. Once governments wrongly accept there is a fixed amount of work to be done, it seems reducing the hours of currently employed workers will create space for the unemployed to step in.

Why not push older people into retirement, in the hope that this will allow unemployed young people to access the supposed lump of work? Or encourage whites to emigrate, thus freeing up their positions for local blacks? Or encourage blacks to emigrate, thus freeing up their jobs for native whites?

Such initiatives typically fail. Hiring, training, and managing additional workers cost money and reduce average worker productivity. An economy grows through the skills and productivity of its workers and entrepreneurs and the capabilities of its regulatory systems.

Removing productive workers, chucking out those who create and sustain enterprises, and disempowering effective government officials, are all immensely counterproductive for the economy as a whole.

The worst manifestations of the lump of labour fallacy in SA today concern anti-immigrant sentiment. Lump of labour advocates think that immigrants reduce available jobs for the native-born. Throw them out and locals will have work.

It is true that an immigrant may secure a position a citizen wanted. But the number of jobs is not fixed. Working immigrants mostly spend their incomes in the economy, creating fresh demand, and so creating new jobs. As migrants expand the population, the number of jobs grows.

Conversely, when a country pushes established migrants back to their country of origin, this creates immediate vacancies but it is likely to worsen the unemployment crisis. The spending power of foreigners is lost, foreigner-created businesses close and let go their local workers, and migrants’ skills often cannot be economically replaced. Established businesses will often simply invest less when migrants, and their skills, depart.

Immigrants tend to be younger and more skilled than locals, especially unemployed locals. This creates a recipe for potential social conflict. But they are also likely to create businesses, improve productivity, and contribute to overall tax revenues. The most successful large countries in the world, notably the US, have shown that immigration can be a key motor for prosperity.

Of course, although migrants tend to bolster productivity, expand an economy, and build the tax base, there are certain preconditions for reaping such rewards. A functional government is needed to maximise the benefits, and minimise the perceived injustice of competition for public services. Where migrants settle and pay taxes, resources must go towards reducing competition with locals for school places and hospital beds. Short-term untaxed and unregulated migrancy, with earnings remitted home, will fail to bolster the host economy much.

There may also be deeper political choices to be made. Some countries, such as China and Japan, enjoy a broad domestic consensus that ethnic homogeneity is desirable, even if this comes at the risk of economic and cultural stagnation. This is their choice. Given SA’s history, it is difficult to see how such a position could be sustainable here. It would also be economically ruinous.

• Butler teaches public policy at the University of Cape Town.

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