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There is not a finite amount of work available in the market. Discover how increased women’s participation not only drives overall economic growth and gender equality, but also challenges stereotypes, fosters diversity, and benefits society as a whole.
Similar questions have been raised whenever immigrants enter a country in larger numbers. Will immigrants or refugees affect the labor market? Do they reduce the jobs that are available in the market? Or do they increase the jobs at hand? If we accommodate more disabled or differently-abled people at work, does that hamper labor markets? Even to think of more specific questions or scenarios, does the short-term banning of women or immigrants entering the workforce benefit native jobseekers?
All of these notions are grounded on beliefs that such limitations would increase the wages of the left-over population. Economists have termed this as the “lump of labor” fallacy. It is a fallacy because underlying these misconceptions is the belief that a finite amount of work is available in the economy.
This idea of limited work implies that a fixed number of jobs are only available and need to be distributed among the workforce, which is why new jobseekers entering the market are seen as a threat.
On the flip side, one study looked at the Census data in the US from 1980 to 2010 for 250 cities. It concludes that increased femme participation led to overall wage growth and raised the productivity of the studied cities.
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What Is The Lump Of Labor Fallacy?
Economists have coined this mistaken assumption or belief as the lump of labor fallacy. David F. Schloss made the earliest reference to the fallacy in the article, ‘Why Working Men Dislike piece-work‘ in 1891.
It is a fallacy because, in the long run, countries have only become better off when women entered the workforce, not just in terms of increasing incomes, but also collectively in terms of gender equality.
Increasing labor force participation increases overall economic demand due to rising consumption needs. To cater to these needs, businesses would then hire more labour, thereby increasing levels of employment. Empirically, countries have only benefitted from increased female participation in the labor force.
Increased participation by women in the labor force not only benefits individual households with rising income, but also plays a critical role in gender equality. They are able to break traditional gender norms and stereotypes, which helps in promoting their overall well-being and self-esteem. These benefits may not be directly computable in economic terms, but this does not mean they amount to nothing.
However, it is essential to remember that the size of the economic pie (GDP) is never fixed. Economies will always grow as productive resources are added. In this case, those productive resources are labor, regardless of whether it is women or immigrants seeking to enter the labor force.
The goods and the labour markets are closely interconnected because, after all, production is by and for the labor. With the increase in the inputs, there is a parallel increase in outputs. Given that labor is used in the production process and laborers are paid wages for their contribution, the same wage generates demand for consumption in the economy, which further increases the demand for labor, creating new jobs in the economy.
Why Do People Continue To Hold To This False Belief?
While it is true that the economy is ever-expanding, it does not imply that every individual will be better off with more people in the labor market, generally speaking. Changes such as these, while essential, do create winners and losers. This breeds resentment and is cashed in on by politicians by stoking an “us vs. them” narrative as a form of voter appeasement. This holds true, especially for the issue of immigration today.
This fallacy also tends to rear its ugly head whenever the economy is facing a sluggish period. Ultimately, it is the wealth of the nation that will determine the average standard of living for its citizens. This is ultimately dependent on the total output produced. During a depression or a recession, the output is hampered. This could be the result of various things, ranging from wars and financial bubbles to bad seasons for agriculture and natural disasters.
Empirically, an expanding labor force has never been the causal variable for any recession.
However, it is important to understand that there is also a non-economic way to approach this question.
In principle, women must enter the labor force not just to increase household or personal incomes.
Their participation benefits the economy overall in the form of the diversity of ideas they bring into the boardroom or workplace. Moreover, their participation affects their mental health and helps them step outside gender roles and stereotypes, furthering the progress of society and true equality.
Even today, across the globe, women tend to secure inferior work opportunities and wages, as compared to men, for the same job. The global labor force participation rate for men is over 80%, while for women it is just over 50%. This gap widens when we start looking at different regions. However, the broader conclusion often remains true—that women tend to get paid less for the same job. Not all companies or employers do this, but societal norms play a sinister and critical role in shaping their choices.
Declining a job opportunity to a woman because of her gender is similar to declining someone else a job because they are Asian or African. You are reducing the talent pool of labor resources for every firm in the economy. Either way, the effect on the economy is adverse, because it misses out on a competent workforce that would have expanded the overall economic output.
How well do you understand the article above!