The fallacy of the lump of labour theory: Evidence for Latin America

Abstract

In a context of population ageing, this article analyses the “lump of labour” theory using empirical evidence from Latin America. Instead of finding a crowding‐out effect, estimations using a fixed effects model on a panel of annual data drawn from household surveys in 11 countries between 2002 and 2019 suggest a positive correlation between the employment rates of older adults and young people. Additionally, results show a positive association between the labour incomes of older and young workers. These findings could indicate that an expansion in the employment of older adults maintains economic growth and, therefore, a greater demand for labour, which could be supplied by young people.