Matt Nolan

The lump of labour fallacy

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I have noticed that there is a belief out in New Zealand that there is a set “lump” of jobs – and if foriegn people come in they take them, and “New Zealander’s miss out”.

Now if this matters to us this may be concerning – however, we have been talking about migrants “creating work” and saying that they do “different jobs” than the New Zealand trained workers.

The idea that there is a fixed lump of jobs does not fit this description. However, the idea has a name: The lump of labour fallacy.

The confusion stems from a fundamental misunderstanding surround what labour is. Labour is an input to production. However, as people (who we value in society) get their income by acting as an input we sometimes view work as income. From this step – we end up saying that other people are “stealing our income” by doing this work.

However, what this argument ignores is that labour is an input to production – if you bring in more people, more stuff can be produced. If the addition person is really productive (skilled labour, or domestic poorly provided unskilled labour) then when they come in to society they quickly help everyone else.

As a result, policies to kick current skilled labour out of the country will be counter-productive. Even if we didn’t care about the welfare of foreign people (which of course we do – and really should equally, but oww well) we are effectively cutting off our nose to spite our face. Keep that in mind.

Matt Nolan

Jobs and production

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In the comments to the “Sigh” post, rainman raises the following reason for government action against currently employed temporary workers:

What then do the displaced workers like the welder in this story do? Go on the dole?

Now, the primary argument against this is that the “displaced workers” aren’t solely displaced. The immigrants are doing a job making things, and therefore this will “create work” for other people.

However, there is another, more fundamental argument against that. And it comes from the idea that we aren’t actually after “making work” (work is a cost after all) we are after making stuff and having a nice living standard for people.

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Matt Nolan

The labour market and wages

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David Farrar has a very good reply to this post from Tane at the Standard.

There are a few points I would like to make as well though. Tane says:

David Farrar made the same fallacy the other day, the minimum wage isn’t there to make us all rich, it’s there to ensure that people on low incomes are able to live their lives with some basic dignity and security

Well, the minimum wage is a poor tool to do this. The best wage to ensure that people have a minimum income is from the state to provide it directly – which they do with the unemployment benefit. In this case everyone has a minimum living standard, but by joining the labour market they can improve on this. Although I believe there is a case for a minimum wage – the case for “increasing” it is much more debatable.

The next section is the bit David discusses:

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jamesz

Homecoming Queen still on top

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For all the nerds and geeks who cursed the popular people at high school but comforted themselves with the thought that future success would be theirs… Steven Levitt has bad news:

…each extra close friend in high school is associated with earnings that are 2 percent higher later in life after controlling for other factors. While not a huge effect, it does suggest that either that a) the same factors that make you popular in high school help you in a job setting, or b) that high-school friends can do you favors later in life that will earn you higher wages.

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jamesz

Where’s the issue?

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One of the two key proposals of the job summit is to institute a nine day fortnight for manufacturing workers. Presumably the idea is to increase the flexibility of working hours and thus increase the number of people in employment.

The obvious question is, ‘what is the market failure here?’ Employers and employees are free to choose their working hours. Employers may employ more people for fewer hours if they so wish, yet they seem not to. Why then would we force people to work fewer hours? Read more

jamesz

No fiddling while Rome burns

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Anyone who’s been concerned at the size of executive remuneration at financial firms will be excited to hear about Credit Suisse’s latest move. Rather than allowing its executives to fiddle as their mortgage backed security investments cause the balance sheets to go up in flames, CS is paying its executives bonuses in illiquid mortgage-backed securities.

I wonder if, given the risk associated with those assets, their bonuses will be correspondingly higher. I wouldn’t want to be the one explaining to shareholders that bonuses were surprisingly high this year, but it’s actually OK because…[drowned out by lynch mob]

ht: Megan McArdle