The lump of labour fallacy

Not all jobs are created equal

I worked, in my time, for small organizations and for big ones. In general, working for a small one is much more enjoyable, albeit often less remunerative. Lots of people of my age do voluntary work, but nobody volunteers to work on a production line in a huge factory, even if what’s being made is intended to relieve poverty. The return from work is not only measured in money. Companionship, support, intellectual challenge, satisfaction from gaining skills and accomplishing tasks are all important components of this. Maybe the reason that financial remuneration is so high in private equity or corporate law is because, in those cases, that’s all the employees get out of work.

Oddly, even in today’s world, distance (and timezones) matter. For a bit, I was based in a distant place, with a distant timezone. I worked for a big, soulless bank, which in London meant that I never even knew what the country head looked like, let alone the people in Olympia (or Zurich, as it is better known). When I did a stint in East Asia, the whole operation, from private banking, to trading, to broking, was much, much smaller with the result that I felt much more positive about my employer than I ever had been previously.

I am an amateur economist, and I’ve read a lot about the labour markets, and how they are treated by different schools. Keynes seems to argue that labour, as a factor of production, can be treated as a homogenous lump, of a size measured in ‘wage units’, corresponding to a sort of standardized man. As I recall, he acknowledges that different individuals represent varying numbers of ‘wage units’, but argues that treating all ‘wage units’ as substitutes for each other is a reasonable assumption.

In the distant past, the number of US employees in McDonald’s restaurants started to exceed the total number of employees in the US steel industry. Samuel Brittan wrote a column which chastised critics for bemoaning this development, presumably arguing that burgers are no less valuable than steel. He argued that both have a value determined by the overall demand for these different goods, and that if workers have to migrate from working in a steelworks to flipping burgers, they should be grateful. The details are hazy, but I think that it has been a consensus view among the bien pensant class that we should not worry about closing down factories, because free trade is an unmitigated Good Thing. Burger flippers are very much like wage units.

Good jobs mean high wages, and high wages means weak substitutability. Weak substitutability is achieved by strong unions, guilds, professional bodies, accreditation and licensing. There has been a huge rise in the numbers of professionals, and a general professionalization of work, which is mostly a good thing, this shift to services impedes our ability to improve productivity, even where it can be measured accurately. At least with a steelworks, you can weigh the output.

Outside the professional services, burger flippers represent a bigger and bigger part of our workforce. It’s not surprising that people opt out of zero-hours contracts with their local MacDonald’s to fake some joint pain or mental illness that brings in nearly as much in disability benefit. Minimum wage laws somewhat offset the oligopsony power of large corporations and private-equity controlled retail services, but at the cost of creating underemployment and disguised unemployment. We need to do better. We need to create cooperative, rewarding workplaces for everyone, if necessary by subsidizing employers or by the state acting as an employer of last resort.

The country needs to fill a lot of potholes, build a lot of new houses, create a lot of infrastructure: roads, water treatment and drainage, and grid upgrades. We have tried privatisation for utility companies. It has failed. The government needs to take back control, while avoiding the worst failures of the old British Telecom and the old CEGB.