Monday, April 22, 2013

Left Foot Forward? Two Steps Rightward!

At Left Foot Forward, James Bloodworth  wrote:
The first misunderstanding here is that the economy has a fixed number of jobs, sometimes known as the "lump of labour" fallacy. 
In reality, just as immigration may increase competition for jobs it can also create new jobs.
Mr. Bloodworth is perhaps not aware that this fallacy claim is the dumbed-down version of Say's Law -- that supply creates its own demand -- which John Maynard Keynes criticized severely in his General Theory. Both Maurice Dobb and Arthur Cecil Pigou pointed out the non-fallacy of the alleged fallacy, under its Marshallian nickname, the "Work-fund fallacy."

The fallacy claim, under various aliases, has been a staple of anti-labour polemics since at least 1780, when Dorning Rasbotham, Esq. pontificated that "a cheap market will always be full of customers."

Actually, Rasbotham's formula should provide a clue as to what the fallacy argument actually asserts -- i.e., that increased competition for jobs (whether from machines or whatever) will drive down nominal wages, which in turn will spur expanded hiring of labour. Since the products will also be cheapened, so the reasoning goes, real wages will not suffer in the long run.

The New Labourite variation on the old right-wing theme denies even that a nominal wage reduction occurs. "Empirical evidence" for this assertion comes from statistical "association" between, say, immigration and mean income. This is like saying the rooster's crowing makes the sun come up in the morning.

That is to say, Mr. Bloodworth goes the old canard one better! Let's see what some proponents (P) and critics (C) of the fallacy claim have had to say:

Dorning Rasbotham (P):
There is, say they, a certain quantity of labour to be performed. This used to be performed by hands, without machines, or with very little help from them. But if now machines perform a larger share than before, suppose one fourth part, so many hands as are necessary to work that fourth part, will be thrown out of work, or suffer in their wages.The principle itself is false. There is not a precise limited quantity of labour, beyond which there is no demand.
William Stanley Jevons (P):
The economy of labour effected by the introduction of new machinery throws labourers out of employment for the moment. But such is the increased demand for the cheapened products, that eventually the sphere of employment is greatly widened. Often the very labourers whose labour is saved find their more efficient labour more demanded than before.
Arthur Cecil Pigou (C):
Indeed, the reasoning process, which seeks to rebut a conclusion merely by disproving the cogency of a particular argument used in its support, itself involves a fallacy to which logicians have given a name — the fallacy ignoratio elenchi. We are not, therefore, entitled to cut short our inquiry concerning unemployment and the fixed work-fund at the point reached so far. It is still necessary to inquire by direct study whether the extra employment, which would be made available in a particular trade by cutting off the competition of foreigners or prisoners in respect of that trade, would be net extra employment, or would be balanced by a corresponding loss of employment in other industries.
Maurice Dobb (C):
What was implied in the economists' retort to the advocates of the so-called Work-Fund leads to the apparent paradox that the more the workers allow themselves to be exploited, the more their aggregate earnings will increase (at least in the long run), even if the result is for the earnings of the propertied class to increase still faster. And on this base is erected a doctrine of social harmony between the classes. But it does not follow that the workers will prefer to be exploited to a maximum degree, or that attempts to limit this exploitation are based on fallacious reasoning. And if in raising the supply-price of their labour the choice lies between restricting the number of men employed or of restricting the amount of work done by each man, the latter seems clearly the preferable alternative.
Paul Samuelson (P):
To begin with, we note the grain of truth in this viewpoint. For a particular group of workers, with special skills and stuck in one region, a reduction in the demand for labor may indeed pose a threat to their incomes. If wages adjust slowly, these workers may face prolonged spells of unemployment. The lump-of-labor fallacy may look quite real to these workers. 
But from the point of view of the economy as a whole, the lump-of-labor argument implies that there is only so much remunerative work to be done, and this is indeed a fallacy. A careful examination of economic history in different countries shows that an increase in labor suply can be accommodated by higher employment, although that increase may require lower real wages. Similarly, a decrease in the demand for a particular kind of labor because of technological shifts in an industry can be adapted to -- lower relative wages and migration of labor and capital will eventually provide new jobs for the displaced workers.
Here is what one of Mr. Bloodworth's sources (Ruhs and Vargas-Silva) wrote:
Dustmann, Frattini and Preston (2008) find that an increase in the number of migrants corresponding to one percent of the UK-born working-age population resulted in an increase in average wages of 0.2 to 0.3 percent. Another study, for the period 2000-2007, found that a one percentage point increase in the share of migrants in the UK’s working-age population lowers the average wage by 0.3 percent (Reed and Latorre 2009). These studies, which relate to different time periods, thus reach opposing conclusions but they agree that the effects of immigration on averages wages are relatively small.
Notice the "These studies reach opposing conclusions"? Here's how Mr. Bloodworth improved on that unsatisfactorily ambiguous result:
A 2008 study found that an increase in the number of migrants corresponding to one percent of the UK-born working-age population in the years 1997-2005 resulted in an increase in average wages of 0.2 to 0.3 percent.

Mr. Bloodworth also spelled Jonathan Portes's name wrong. But I suppose there's no time to lose when you've got boilerplate to crank out.

1 comment:

neroden@gmail said...

I would point out that if a country has free importation of goods, then immigration is incapable of further depressing wages in manufacturing and agricultural jobs -- because the wages were already depressed by offshoring.

I suppose immigration could depress wages in service jobs, which are harder to offshore. But the fact is that even those are being offshored. The jobs of waitresses may soon be considered very high-class.