Baby boomers and the lump of labour

The UK is set to abolish its compulsory retirement age of 65 in October 2011. The CBI frets that this will reduce opportunities for younger workers -- job blocking, which is kind of like "bed blocking" in hospitals, I suppose -- but most media commentators seem to be in favour.

Many of these commentators are citing the "lump of labour" fallacy, an oldie but goodie in the economist's armoury. The fallacy is that there is a fixed amount of employment in the economy, with the result that if one person has a job, someone else is deprived of the chance of employment. The reason this is deemed fallacious is that employed people spend their earnings, which in turn creates employment for others.

As the great Baltimore economist Stringer Bell might put it, "true dat". But it's not the whole story. Sure, it's true in a macro sense, but there's quite a lot of devil in the details. A 70-year old finance director at a major corporation might well be spending his money like water, but the jobs he's creating are mainly in the restaurants he frequents or at the Mercedes factory. Meantime the 55-year old chief accountant is spinning his wheels and so are all the people in the chain behind him, till at the very lowest level the firm decides there's no need to hire a new entrant in the finance department this year -- and the potential new entrant then finds himself serving the finance director his after-work cocktail instead.

But hey, the new entrant has a job of sorts, so lump of labour is still a fallacy and none of this really matters, right? I'm not so sure. Experience tells me that there won't be many binmen or coal miners blocking jobs by hanging around after the age of 65. But there'll be lots of public servants and accountants and economists and suchlike. It's the skilled professions where the jobs will get blocked. At a time when it's already very difficult for young graduates to make a start on their careers, is this really what we want?

One of the few objections that I've seen to the end of compulsory retirement came from someone who saw it as yet another move by the baby boomers (My Generation, baby) to rewrite the rules of society in their own favour, regardless of the consequences for anyone else. Me and Stringer Bell are as one on this: "mos' def".