The lump of labor fallacy is the fallacy (the false notion) that the demand for labor in an economy is fixed over time. There are many economists in many different schools of thought...yet most would agree that the lump of labor fallacy is an inaccurate assumption to make about the economy.
There are many factors involved in how much labor is required in the economy, such as technology (either creating or replacing jobs), investment, economic growth (GDP), and more.
Claims that immigrants are “taking jobs” rather than contributing to and expanding the economy (which can create more jobs) is one example of where the lump of labor fallacy come in. Another interesting place it’s reared its head is with the timing of retirement for older workers. In parts of Europe, elderly workers were encouraged to retire early to give younger workers a better shot in the labor market, but because labor isn’t fixed, this theoretical fix for the labor market didn’t pan out in reality. Instead, the working population was reduced, and burdened with paying for more retirees. Oops.
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Econ: What are Marginal Product of Capit...2 Views
and finance Allah shmoop What are marginal product of capital
and marginal product of labor You know those silly economists
always thinking on the margin and about inputs and outputs
if you're not in the know while thinking on the
margin means thinking about an additional unit of something like
inputs sometimes called factors are the things firms used Teo
make stuff to sell An output is thie ending product
that goes to the consumer market called product by firms
The marginal product of capital asks how much more product
the output would we have if we added one more
unit of capital to the production process Well the marginal
product of labour is the same except while we switch
the input of capital with the input of labor the
marginal product of labour asks How much more output would
we have if we added one more unit of Labour
into the system Well with both of these were not
looking at total output but rather how much more we
get if we tinker around with our inputs of it
So let's take a look at man's best friend to
see how marginal product of capital in marginal product of
labour interact And no we don't mean dogs We're talking
about the one in your pocket Yes your phone In
a cellphone factory you've gotten assembly line with embryonic phones
making their way through the production process On that assembly
line there's a mix of humans and robots each specialized
in an area of phone production A firm has the
goal of increasing profits which means reducing costs as much
as possible and increasing revenues as much as possible So
sure having the assembly line helps But what mix of
robots and humans will cost the least or have the
least expense Well that's where the least cost rule comes
into play and least cost Rule says that to minimise
costs you find the amount of marginal product that a
dollar spent on each input type makes and then you
set them equal to each other at the phone Jess
Station Factory Well that means the firm can figure out
how many workers to hire and how many machines to
rent to minimise costs So let's take a look The
firm's handy dandy marginal product chart If we look at
the marginal product of laborers and the marginal product of
machines Well we can see each additional one of them
yields less and less marginal output That's the law of
diminishing marginal returns rearing its ugly head If laborers cost
ten bucks an hour and machines can be rented for
eight bucks an hour then we can calculate the marginal
product a price ratio for each quiz time How many
workers and how many robots will the firm hire Well
remember firms can get the most bang for their buck
by employing the quantity of inputs where their marginal product
to price ratio equals each other depending on how much
money the firm has Well it has a few different
options The phone firm could hire one worker into machines
each which have a marginal product to price ratio up
Six Let's think about what that means for a minute
The first worker hired would result in a marginal product
of sixty sixty units still adding sixty more phones to
total output But at what cost Ten bucks Six additional
phones per dollar Well the first machine is adding sixty
four more phones to total output for eight bucks which
means eight more phones per dollar Eight more phones for
dollars better than six phones for dollar right So we
hire a second robot A second robot will only bring
in an additional forty eight phones and it still cost
eight bucks to rent So for the second phone assembling
robot that's forty eight divided by eight dollars That's six
additional phones per dollar spent who Wait a minute here
That's the same marginal product to price ratio As the
first human you might be thinking Why not just hire
all robots Well because hiring the first worker is a
better deal than hiring the third robot Hiring the first
worker gets you six phones per dollar and the third
robot gets you only four phones per dollar which is
why the least cost rule here works If your MP
over peas are unequal it means you're missing out on
a more cost effective input combo if the phone firm
has more money while it could hire where MP Over
P is for which means to workers and three machines
and could also higher where MP p o ver p
equals two which means three workers in four machines firms
have to know their marginal product of capital in marginal
product of labour so they can tinker with the numbers
finding the least cost way to produce their product because
otherwise some other firm will be finding a lower cost
way to make the product they could then use that
advantage toe undercut competitors pushing them out of the market
It's kind of like Survivor but with firms everybody's gotta
stay neck and neck to keep their skin in the
game or else you know they'LL get voted off the
island So if you're a firm tinker away with marginal
product and hopefully you'LL never hear the words of the 00:04:33.597 --> [endTime] tribe has spoken What
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