Is the “Lump of Labor Fallacy” Actually a Fallacy in Developing Economies

There is a persistent and intuitively appealing idea that haunts labor market policy debates in developing economies: that jobs are a fixed pie, and if an older worker keeps a slice, a young person goes hungry. In countries where youth unemployment is stubbornly, painfully high – think Morocco at over 35 percent for those aged 15-24, or Brazil's substantial informal workforce – it can feel almost morally obvious that older workers should step aside and make room. Economists have a name for this idea: the “lump of labor fallacy.” However, in emerging markets, with their segmented labor forces, thin pension coverage, and vast informal sectors, does the theory actually hold? The answer, drawn from data across Brazil, Morocco, and a global sweep of low- and middle-income countries, is: yes, it is still a fallacy. But understanding why matters enormously. Getting the reasons right is the difference between labor market policy that works across generations and well-intentioned reform that misses the mark. The Seductive Logic of the Fixed Pie The lump of labor fallacy rests on a simple, static view of the economy: there are only so many jobs to go around, so any group that occupies more of them leaves less for everyone else. By this logic, raising the retirement age as Morocco did in 2016 (from 60 to 63 for civil servants) and Brazil did in 2019 (introducing a minimum retirement age of 65 for men and 62 for women) would be expected to impact youth employment. It did not. Brazil's natural experiment is particularly striking. Tracking over 5.3 million observations from a decade of labor market data, researchers tracked what happened to youth employment (ages 18-29) as the share of workers aged 55 and older rose from 23.1 percent to 24.4 percent and among those aged 55-59, from 64.8 percent to 71.3 percent. The effect on youth employment? Statistically indistinguishable from zero. In rural areas, the effect was mildly positive, suggesting that when older workers remain economically active, they generate demand that can benefit younger workers too. Labor markets are not zero-sum. Morocco tells a similarly instructive story. After the 2016 pension reform kept civil servants working longer, youth unemployment trends remained decoupled from the rising retirement age. When youth unemployment did spike in 2020 and 2021, the causes were COVID-19 and severe drought, and not a 63-year-old teacher staying in post a few extra years. Why the Fallacy Still Fails, Even Where it Feels Real If the lump of labor is a fallacy, why does it feel so real in places like Morocco, where nearly 80 percent of the workforce operates informally and only 23.4 percent of workers have any pension coverage at all? The answer lies in the structure of the labor market. In developing economies, older and younger workers are not, by and large, competing for the same jobs. They inhabit different economic worlds. Older workers in Morocco are concentrated in informal agriculture and small-scale self-employment. These are sectors that require the accumulated financial and social capital that comes with age. Young, educated Moroccans, meanwhile, are queuing for formal private-sector service jobs in cities. These are jobs that do not exist in sufficient numbers, regardless of the work pattern of older workers. The frustration is real and the unemployment is real, but this is a supply and demand mismatch, not an intergenerational battle. The cross-country data confirms it. In Japan, older workers shift into lower-wage roles after 60, creating a segment that barely overlaps with where younger workers are trying to enter. In Europe and Central Asia, older worker participation rose from below 50 per cent in 2010 to around 65 percent by 2024, the strongest upward trend globally, without crowding out youth. The picture that emerges from the data is consistent: countries with higher older-worker participation tend, if anything, to have higher youth participation too. Iceland exemplifies the high-high equilibrium; Türkiye the low-low. Employment, when the economy is expanding, lifts multiple boats. Where Policy Should Focus None of this means that our labor markets are working smoothly for everyone. Youth unemployment in emerging markets is a genuine crisis with real human costs. But the evidence points firmly away from older workers as the culprit and toward structural failures in job creation, education, and the design of social protection systems. In Morocco, weak formal private-sector development and a mismatch between educational outcomes and employer needs are the core problems. In Brazil, the design of social protection, including the complementary role of Bolsa Família in allowing young people to invest in skills rather than rush into low-quality informal work, matters as much as pension reform itself. In both countries gender-based exclusions and regional disparities compound the problem in ways that early retirement schemes would do nothing to address. The policy implication is clear, if not always politically easy: the answer to youth unemployment is expansion, not redistribution. Governments need to grow the size of the jobs pie, not focus over how to divide it. That means investing in formal private-sector job creation, designing apprenticeships and vocational pathways that match where labor demand actually is, and building pension systems that are generous enough that older workers can retire with dignity, rather than working out of necessity and being blamed. For older workers themselves, the right tools are flexible retirement ages, phased retirement options, and lifelong learning programs that allow skills to stay relevant. These are not gifts to one generation at the expense of another. They are investments in the productivity of an entire economy across its full working life. The Ladder Must Hold Research like this raises as many questions as it answers. At a firm level, do the aggregate findings hold, or are there sectors where older workers staying on does constrain hiring? How will AI impact intergenerational employment trends, especially given emerging evidence that it indeed has most impact on younger workers? These are the right questions to keep asking. World Bank President Ajay Banga often talks about getting your hands on the bottom rung of the ladder so you can climb. Labor market policy needs to also ensure the ladder doesn't get pulled away halfway up — that healthcare, pensions, and job markets continue to work for people as they move through life. That is not a promise that any one reform can deliver. But it is the standard every reform should be measured against. With thanks to the Columbia SIPA team whose research underpins this piece. Link to the research: https://www.sipa.columbia.edu/sipa-education/capstone-workshops/challenges-labor-force-participation-aging-societies-and-shifting