Economic Analysis
The issue of the lump of labour, as well as that of the consequences of technological progress on employment, can be enlightened recurring to simple tools of economic theory, by distinguishing the substitution and the scale effect of a change of the conditions of employment. The substitution effect considers the consequences on employment given the output level, the scale effect considers the consequence on employment of the change in the costs of production by way of the effect of the latter on the production level. In case of a reduction in labour time, there are two possibly contrasting effects: given technology you need more employees to produce the given level of output, but this can be offset or more than offset by the scale effect. Therefore, a priori, one cannot tell whether the reduction in the hours of employment will increase or decrease the number of employees.
Obviously, the scale effects depends on what happens to wages and the other conditions of employment. For instance, if monthly wages remain constant when the labour time is reduced the costs of production increase and this produces a negative scale effect on employment. But if wages are reduced to the extent to compensate for the consequences of the reduced labour time on the costs of production, the scale effect can be neutralized leaving only the substitution effect to operate. Another way could be to change the conditions of employment so as to compensate for the consequences of the reduction of labour time on costs.
For instance, the reduction of labour time in France was accompanied by a liberalization of the number of shifts, increasing the utilization of plants in the 24 h, offsetting to some extent at least the consequence of the reduction of labour time on costs. The same analytical tools can be utilized for considering the consequences of technical progress on employment.
Historically, the gigantic increase in labour productivity induced by technological progress since the industrial revolution has resulted in the dominance of the scale effect, bringing about both a massive increase in real wages and a decrease in labour time. There is no reason to expect that this same process cannot be continued in the future.
Read more about this topic: Lump Of Labour Fallacy
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