Friday, April 22, 2016

Worstall's Malignant Lump

In an op-ed at the New York Times yesterday, Nick Hanauer and Robert Reich made the following observation:
In a cruel twist, the longer and harder we work for the same wage, the fewer jobs there are for others, the higher unemployment goes and the more we weaken our own bargaining power. That helps explain why over the last 30 years, corporate profits have doubled from about 6 percent of gross domestic product to about 12 percent, while wages have fallen by almost exactly the same amount.
According to Tim Worstall, Hanauer and Reich committed a lump-of-labor fallacy. Worstall objected specifically to their claim that raising the income cap for the overtime premium would force employers to either pay higher wages or hire more workers. Worstall's objection is that the employer's demand for labor will not remain the same if the cost of that labor goes up.

To be precise, Worstall's assertion is one version of the fallacy claim complex. It happens to be the version refuted by Maurice Dobb in 1929. As Dobb pointed out, workers are concerned with how much compensation they receive in return for the amount of effort required of them and not simply in the aggregate amount of employment in the economy. Working longer hours for less pay is not a bonanza for the workers even if it does lead to more aggregate hours worked in the economy as a whole.

 But again, Worstall's fallacy claim is but one version of a complex of claims, some of which contradict each other. I addressed this perplexing proliferation of claims in my contribution to Working Time: International trends, theory and policy perspectives. Refute one of the bogus fallacy claims and a substitute will immediately pop-up to take its place!

It is not easy to unpack what is going on inside the fallacy claim because its persuasive strategy is based on a "house of mirrors" effect. Whether disingenuously or unwittingly, fallacy claimants commit yet another version of the fallacy they attribute to others. Their error, though, is embedded in the perfect competition, perfect information, full employment, ceteris paribus abstractions of the standard equilibrium model of supply and demand. The name given to this set of abstractions by those who mistake them for a description of reality is "economics." When "economists" commit this vulgar error it is regarded by Worstall & Co. as an infallible maxim.

Now, it is conceivable that some of those accused of committing the lump-of-labor fallacy may indeed assume the proverbial "fixed amount of work to be done" or whatever. There can be bad arguments for a good cause. But, as A.C. Pigou pointed out in his refutation of the ubiquitous fallacy claim, "If it were a good ground for rejecting an opinion that many persons entertain it for bad reasons, there would, alas, be few current beliefs left standing!"