The non-existent ‘lump of relationship’ fallacy

A very common mistake people commit when thinking about economics and the labour market is the ‘lump of labour’ or ‘lump of jobs‘ fallacy. It crops up in ideas like these:

“We should cut immigration to make sure unemployment doesn’t get any higher.”

“We should lower the maximum number of hours that people work so that more unemployed people will be able to get jobs.” (A restriction on hours worked was actually enacted in France for this reason!)

“This construction project is going to create 100 new jobs for Sydney.”

These are all nonsense and the mistake that they make is to assume that there is some predetermined demand for ‘hours worked’ in the economy that people take from and add to. This is not the case, at least not in any ordinary circumstance. [1] A country never ‘runs out of work’ to do. We could always collectively choose to spend more time working and consume the fruits of our additional labour, if we wanted.

Rather than think of the labour market as being about rationing out some fixed lump of ‘demand for labour’ between people, we should think of it more like a speed dating service, or a so called ‘matching market‘. Employers and employees move between tables, talk to one another briefly and try to find appropriate matches between customer demand, willingness to pay, skills, culture, wage demanded, preferences for work-life balance and so on, just as speed-daters talk to one another in order to assess their compatibility for a relationship. When two partners match, they enter into an employment arrangement, a relationship, a friendship, or whatever. Clearly it is appropriate for people to be unemployed or single at times, so that they can search around for appropriate partners. Some folks will end up unemployed or single for extended lengths of time because they can’t find appropriate partners, perhaps because they aren’t going on many dates, have high standards, or their particular traits aren’t much desired by potential partners.

The curious thing is that while the ‘lump of labour’ fallacy is the standard way the human mind appears to approach employment, I have never heard anyone commit a ‘lump of relationship’ fallacy. People would look at you astray if you suggested that we would improve social relations by preventing any two friends or lovers from spending more than a certain number of hours enjoying one another’s company in a given week. Nobody thinks that immigrants necessary result in more lonely hearts among everyone else. Nor would releasing 100 men and women keen to hook up with engineers into the Sydney CBD result in 100 additional relationships for Sydney’s engineers, though it might result in a few more if it facilitated some easy matches.

I don’t know why we think about jobs and relationships in such different ways, but whatever the reason, this analogy seems like an quick way to improve people’s thinking.

[1] For the economists, that is when fiscal and monetary policy is able to keep us out of a self fulfilling cycle of low demand and low output, which is most of the time.