The Economist warned readers of the error of trying to reduce unemployment by cutting work hours or other such methods, referring to the "lump of labor" fallacy -- the idea that there is a fix demand for labor to be spread around. While the Economist has an arguable case in normal times, it does not have an arguable case in a prolonged period of high unemployment like the current situation. In the current situation, the notion of a fixed demand for labor (absent some exogenous stimulus) is very much on the mark. We can have 100 million people 40 hours a week or we can have 111 million working 36 hours. Of course, the world is a bit more complicated than this, but the basic arithmetic does hold. Given that the unemployment rate is almost certain to keep rising for most of the rest of the year, and we are unlikely to see the unemployment rate cross 9.0 percent again for at least a year and a half, it would be nice if our politicians in Washington would start doing some arithmetic and think about this obvious way to deal with the unemployment problem.
--Dean Baker