Introduction

The lump of labour fallacy is nowadays used by policymakers as one of the strongest arguments against early retirement. In essence, the case is that the labour market is not based on a fixed sum of jobs and, consequently, retirement ages can be adjusted without any harm. It may seem logical to argue that increasing the age of retirement may lead to a decrease in youth employment. However, opponents of the lump of labour argue that there is no share of jobs between the young and the old. The dominant literature also tends to support the idea that increasing older workers’ employment participation leads to an increase in youth employment; what is good for one is good for all. In other words, the current idea is that the labour market is a dynamic environment where jobs are created and destroyed at the same time (Cahuc and Zylberberg, 2015), integrating the population whatever its size and composition. In summary, supporting the lump of labour fallacy leads one to think that an increase in retirement ages is good for the economy – as it reduces pensions expenditure, raises overall employment and increases tax revenue – and good, consequently, for all workers.

This chapter looks at the evolution of the concept of the lump of labour fallacy over time. The first part looks at its origins, its policy implications and recent works dedicated to it, focusing particularly on retirement ages. It is shown that the lump of labour fallacy is used as a theoretical background for much of the recent empirical work but that its background has never been deeply investigated. Using recent British data provided by the Office for National Statistics (ONS), the second section of this chapter analyses the association between youth unemployment and inactivity and the employment participation of the other age groups. Comparing results obtained in the empirical part with the theoretical background presented in the first section, the conclusion raises further issues that deserve to be investigated in depth in more detailed research.

Theoretical background

The origins of the notion of a lump of labour are difficult to determine with precision. Usually, the literature refers to the famous book by Henry Mayhew (1864) entitled London labour and the London poor.