Cheese-eating Job Creators (and the lump-of-labor fallacy)
I have been following Sandwichman for a long period of time. Since I do shop floor throughput exercises which no economist appears to understand in a micro sense, Sandwichman comes the closest to what I deal with on a day to day basis.
“Traditionally, it is a fallacy of the economically naïve left — for example, four years ago France’s Socialist government tried to create more jobs by reducing the length of the workweek.”
Well, I hadn’t looked at this data for a while; and where we are now is quite stunning:
“Since the late 1990s we have completely traded places: prime-age French adults are now much more likely than their US counterparts to have jobs.
“Strange how amid the incessant bad-mouthing of French performance this fact never gets mentioned.”
Now that you’ve mentioned this fact, Paul, how about revisiting the cogency of the lump-of-labor fallacy claim?
“Economists call it the “lump of labor fallacy.” It’s the idea that there is a fixed amount of work to be done in the world, so any increase in the amount each worker can produce reduces the number of available jobs. (A famous example: those dire warnings in the 1950’s that automation would lead to mass unemployment.) As the derisive name suggests, it’s an idea economists view with contempt, yet the fallacy makes a comeback whenever the economy is sluggish.”
“‘Tis work, work, work, without stint or shirk.
Till the world of his wares is full;
This worker, I trow, we all of us know,
And his name it is John Bull.”
from Punch, 1851
I just do not understand how the econ profession forgot that as productivity increases and prices come down, more people can purchase and thus more labor is needed. We have yet to reach the point where productivity is staying ahead of population growth on this planet.
Of course, the other issue is what kind of work society needs to have performed. We seem to be forcing ourselves into a box of stuff producing only as it produces an immediate “money” gain as being the only true work that matters. All that other stuff that can be generically referred to as “house keeping”, the stuff that requires a human expenditure of energy seems to be not considered important. You know, the jobs that are not assembly line, continual improvement, reject reduction amendable.
Maybe the house keeping is not considered important and “money” building because the freak’n rich don’t see that the person cleaning their toilet today is the one that allows them to watch their ticker tape machine.
>>It’s the idea that there is a fixed amount of work to be done in the world, so any increase in the amount each worker can produce reduces the number of available jobs.<<
Too obvious that more workers allows more output. But nothing necessarily wrong with spreading same work among more people. Anyone knows that can be done by lowering labor's price (don't dare :]-). Why not by lowering individuals' hours?
Apparently no one told economists they had to be consistent. The “efficiency wage” argument of New Keynesianism actually does assume the proverbial “fixed amount of work” but nobody accuses the New Keynesians of committing the fallacy. I would — but the argument is too convoluted and I am afraid the exemption for hypocrisy is irrevocable.
And least we forget (because in America it seems to be a sign of elitism to learn from history) Kellogg’s 6 hour work day back in the days of the labor wars (actual killing and all kind of war).
Granted, you kind of have to implement the total package or it might not get us what we want.
Actually, the whole “secular stagnation” argument implies that there is chronic insufficient demand to create full employment for all the productive labor and capital available in the economy. I think it should be a logical inference that there not enough work for everyone able and willing to work when population growth slows (or declines), and both private investment and consumption declines, savings increase, and velocity of money slows as individuals value the safety of cash and cash equivalent assets to preserve capital.
Hmmm, did you mean this: “I think it should be a logical inference that there not enough work for everyone able and willing to work when population growth slows (or declines), and both private investment and consumption declines, savings increase, and velocity of money slows as individuals value the safety of cash and cash equivalent assets to preserve capital.” or did you mean something on the order of this: I think it should be a logical inference that there “is” not enough work for everyone able and willing to work “until” population growth slows (or declines), and both private investment and consumption declines, savings increase, and velocity of money slows as individuals value the safety of cash and cash equivalent assets to preserve capital.
In which case, I would say you do not need population to slow or decline as it is a tad above replacement already. Investment in capital is replacing Labor or is going to non-labor investments. The issue is Labor is not enjoying the fruits of those investments in the form of productivity gains due to increased throughput/productivity or from non-Labor intensive investments. It could come in the form of same 40 hours of pay for 32 hours of work which is no huge increase (think 10% of the cost of manufacturing) or through taxation of non-labor capital profits the same as wage earnings. There is a shift occurring which has been taking place since the late seventies.
Seems to me it’s pretty hard to deny that the increased productivity is related to automation and in manufacturing
the recent return to the U.S. of some manufacturing has been accompanied by lower numbers of workers needed for the production levels achieved.
The notion that lower prices will increase employment because of supposed increased demand is certainly gainsaid by the experience of Walmart where sales are down due to lack of money in the pockets of its potential customers. Anybody recall the wisdom of Henry Ford?
Just to be clear, Sandwichman’s post concerns France’s change in the work week hours and the resulting increase in the numbers of employed. The US has a tendency to take a singular worker and work them the prescribed 40 hours. My own case for instance was the 50 hour week at no additional pay since I was salaried (exempt). Ok, if I can work an additional 10 hours per week meaningfully, than why? Why not hire the one additional person as the difference in Direct Labor cost (see one of Sandwichman’s earlier posts (chart) on AB last week) is not that great and potentially the output increases due to shorter hours and increased buying power of the former unemployed new hire. France’s improvement is the result of a shorter work week.
Your argument has merit on higher pay (Ford) and lower prices (WalMart). Now make the argument of a shorter workweek at same weekly wage and more people working. It is pretty much the same argument. Remember what I always said? Labor is the smallest component in the cost of manufacturing or doing business. Overhead and materials as a percentage is far greater. When you look at Labor as an accountant, they burden Labor with all of the Overhead costs which is why Delphi’s Miller made the argument of a $75.00/hour. It is a BS argument on his part. While the Labor cost may be a bit higher for a unionized worker as opposed to non union, there is an increase in buying power and the percentage of Labor in a Product is small today and far smaller than what it was in the sixties due to increased productivity due to technology and/or throughput due to better planning or factory layout.
No one sources in China due the direct Cost of Labor in a product as there is not much difference in the Labor in it. They go to China because of reduced Overhead which is far greater than the cost of Labor as a percentage of the product. I have said this before. Peter Drucker made a consulting life of doing this as well as Ingersoll Engineers of which I was a part. What is that Overhead? SS for both the employer/employee, healthcare (70% paid for in ESI), OHSA, Child Labor Laws, EPA requirements, Unemployment, Workman’s Comp, Property Taxes, 401k contributions, etc. Most of this is nonexistent in Asia or is dramatically less cost and is not subject to improvement due to technology or throughput.
If people are coming back to the US from China/Asia, it is more than likely not due to Labor. Mostly when you buy in China the terms are FOB or you pay when it is on the boat. Three weeks of ocean, one to two weeks to get to you once it hits Long Beach to be offloaded, go through customs, and have the container (full one) come to you by rail. You own 5 weeks of inventory in transit and not subject to immediate sales plus whatever inventory you keep in house which I am going to say is another 5 weeks. Off on a tangent; but, it is worth repeating.
The one thing often ignored by the global proponents is the cost of idle Labor. There is a cost to unemployed people and it goes beyond unemployment payments. Less consumption is one of those costs as well as uncompensated healthcare, welfare, etc. The unemployed just don’t disappear an Soylent Green is not being practiced yet. So it behooves us to put them back to work in a manner which makes sense. Circuitously, I have arrived at the beginning without talking about worker efficiency working shorter hours.
This oughta bring out the Macros in earnest.
Well, certainly JackD, lower pricing do to productivity increasing demand works hand in hand with the worker seeing the productivity gain in their pay check like in the good old day (pre 1974).
Run, the costs of labor in the U.S. include the additional costs you list such as health care, 401(k)’s, workmen’s comp and the like as well as safety regulations via OSHA and toxic discharge regulations for example and there may be others that I’m forgetting. Nevertheless, it apparently is now cost effective for some manufacturers to return to the U.S. but, as I noted, with fewer employees. They probably would not do so if they needed the larger number of employees that are currently in use in off shore locations and were here before being off shored unless the wage and regulatory components off shore were approaching those here.
It may make sense from the perspective of the economy as a whole for the “system” to hire more people via shorter hours or whatever, but that requires persuading individual employers they should do that. I think that will be a tough sell because people in this day and age think in the short term. More hires today probably doesn’t mean more sales today for most businesses.
Plain and simple as this was and still is my livelihood. You are not doing a apples to apples comparison when you compare in such a manner.
What am I missing? I certainly respect your expertise.