“Lump” and “labor” are two words that people don’t normally put together. However, the “lump of labor” fallacy is evident in many people’s thinking. The lump of labor fallacy is the assumption that there is a fixed amount of work to be done.
If this were true, new jobs could not be generated, just redistributed. Those who believe the fallacy have often felt threatened by new technology or the entrance of new people into the labor force. These fears are rooted in a mistaken zero-sum view of the economy, which holds that when someone gains in a transaction, someone else loses.
It’s a tempting idea to some because it seems to be true. For example, jobs can be lost to automation and immigration. However, that is not the full story. In reality, the demand for labor is not fixed. Changes in one industry can be offset, or overshadowed, by growth in another. And as the labor force grows, total employment increases too (Figure 1). This article provides two lessons that refute the lump of labor fallacy and explains a simple economic model that shows how the economy functions, shedding light on how technology and immigration can increase standards of living. Read more…..
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Berkshire Hathaway’s chairman and CEO Warren Buffett sat down with CNBC’s Becky Quick on Monday to answer viewer questions and discuss the top news stories of the morning.