No Such Thing As a Paid Vacation

Last week I was talking to one of the sharpest knives in the progressive economic policy drawer and he made what struck me as an odd claim about what he claimed as an important divide in progressive thinking. Some people (including the two of us) think that public policy can affect workers' total level of compensation by affecting overall labor market conditions. We don't, however, think that mandating the provision of certain kinds of benefits can increase total compensation. I didn't believe him at the time, but it seemed to me to be part of what was going on during the vacation debate in the comments section of the blog.

In particular, in my view a lot of people are being misled by the concept of a "paid vacation." A paid vacation is a kind of accounting fiction -- you continue to draw a paycheck (and health care benefits, etc.) even while you're on vacation. But nobody's going to pay you to go on vacation. You're paid for the work that you actually do. The money you get on your vacation days is part of your payment for the work you do on the other days. Over the long run, if the government mandates a certain number of paid vacation days, then positions that currently offer fewer vacation days then that will become less lucrative.

In the real world, wages tend to be sticky, so a government mandate of more vacation probably wouldn't lead to immediate pay cuts, but a government mandate of more vacation probably wouldn't involve immediate implementation anyway. The point, though, is that while we definitely could use public policy to shift the money/leisure mix the American workforce receives, we can't just conjure up free money through a regulatory mandate -- if everyone is made to work less, then everyone will earn less money. That's perhaps a defensible trade off (the French certainly seem to think so) but there's a real price to be paid.

Comments

Not necessarily. If people become more productive as a result of added vacation -- because they concentrate better, become more focused, are better rested -- then the regulatory mandate would effectively conjure up free money. The company's output will increase, and it can afford to pay everyone just what they get now even with additional vacation.

Posted by Tim | July 19, 2007 9:45 AM

Why not allow people to take as many unpaid vacation days as they want, up to a certain limit? I get 4 weeks paid vacation per year, but am also allowed to take addional days off unpaid if I want to (which, unfortunately, I think I'll have to do this year).

Posted by Jim W | July 19, 2007 9:46 AM

test

Posted by Petey | July 19, 2007 9:50 AM

The "increased productivity leads to increased wages "gag has been, unfortunately, rendered null by the recent wage stagnation. People produce more and their bosses take the dough.

Posted by Jeffrey Davis | July 19, 2007 9:53 AM

Woo-hoo! I can post links again.

(I figured I'd try since I noticed that Marc Ambinder had started accepting unmoderated comments, and guessed that perhaps there were site-wide changes to Atlantic's comment engines.)

-----

And as long as I'm off-topic:

Drudge is doing a hit piece on Rudy at the moment. (Over lateness?) If you want to understand why Rudy's not gonna be the GOP nominee, there you have it. Drudge is the tip of a much larger iceberg.

Posted by Petey | July 19, 2007 9:54 AM

And on-topic:

While I understand and respect the logic behind Matthew's argument, I don't think the real world effects are nearly as cut and dried.

Things like mandating paid vacation time may well have the real world effect of increasing total compensation for a variety of reasons.

That said, if the sole goal is to increase total compensation for labor, mandating paid vacation time (or any similar mandate) is not the most efficient way to go about it.

The reason for mandating paid vacation time should be to increase the quality of life of workers, not to increase total compensation.

Posted by Petey | July 19, 2007 10:00 AM

Re: "If you want to understand why Rudy's not gonna be the GOP nominee, there you have it."

Petey,

Are you still standing by your prediction it will be McCain?

Posted by Jim W | July 19, 2007 10:01 AM

You're paid for the work that you actually do.

This is one of those things economists say that bears no relation to any reality I have lived or witnessed.

Posted by peep | July 19, 2007 10:04 AM

This is the key insight if you're going to be a rational liberal in the Alan Blinder "Hard Heads, Soft Hearts" vein. It's OK to want certain liberal outcomes, and it's OK to be willing to pay the price for them (although you should have as good an idea as possible of how high that price is going to be; sometimes it really isn't worth it). But just pretending there isn't a price doesn't help. Of course, this is obvious almost to the point of being trivial, and yet a lot of people seem to miss it.

Posted by David J. Balan | July 19, 2007 10:06 AM

"Are you still standing by your prediction it will be McCain?"

My line has been McCain or Thompson for a while now. If McCain is never able to recover, Thompson is a perfectly nominatable alternative.

Best I can tell Romney and Giuliani aren't nominatable, and it's hard to imagine Huckabee connecting.

Posted by Petey | July 19, 2007 10:07 AM

"In particular, in my view a lot of people are being misled by the concept of a "paid vacation." A paid vacation is a kind of accounting fiction -- you continue to draw a paycheck (and health care benefits, etc.) even while you're on vacation."
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Oh yeah? There are millions of Americans that may be told they can choose to not show up for a week or two or three during the year but they'll get squat while they're off. Many, many sales jobs are 100% commission. Waiters and waitresses get the bulk of their income from tips. No work, no tips. Real estate firms typically don't pay a salary, you're commission. You may have active listings but as in any other high dollar item if you truly disappear for three weeks and make yourself unavailable to your customer base no deals get closed. How does that small businessman in the Florida Keys, the one giving personal scuba lessons, draw a check when he's in Montana hunting elk for three weeks? He doesn't. You people getting a regular check once a week enjoy a luxury unknown to a great many other people. For them a "paid" vacation is a foreign concept, kind of along the lines of a free lunch. Free lunch? Doesn't everyone get those?

Posted by steve duncan | July 19, 2007 10:13 AM

"The company's output will increase, and it can afford to pay everyone just what they get now even with additional vacation."

A company will only pay as much as it HAS to pay. It won't pay more than market compensation regardless of whether it could AFFORD to pay more. Matt's point is that to increase total compensantion you need policies that alter the supply and demand curves in some way and/or shift more bargaining power in workers favor.

Posted by Led | July 19, 2007 10:14 AM

This is idiotic.

Look, if additional vacation is mandated, production may go down or it may not. Many jobs have lots of slack, and an additional week off per person may simply shift some work onto others or shift the work into other periods for the same employee. If there is no decrease in production, then there is no reason to cut wages.

If there is a decrease in production, then the lost income to the firm must be compensated for. This could occur: (1) by cutting wages and salaries of those who take the vacations; (2) by a reduction in a return on capital (reduction of profits to shareholders); (3) by a reduction in the obscenely inflated salaries, benefits and perks paid to top management; (4) by a modest rise in the prices of the firm's products or services.

In fact, it is possible that wages in some areas might rise. If a firm must replace the vacationing worker, then the firm must go deeper into the labor pool and may have to offer higher wages to attract competent employees. Or it may have offer more overtime (at time-and-a-half) to those who want it, increasing average wage rates.

What will actually happen depends entirely on the relative bargaining power of the various participants in the market and would likely be a combination of all of the above. There is no reason at all to think that an increase in government-mandated vacation time will translate into an hour-for-hour reduction in wages.

Really, what is going on on this blog? At one point, Matt was an intelligent moderate liberal. All of sudden, he's a wingnut spouting moronic right-wing talking points. Has there been an invasion of the pod people?

Posted by Bloix | July 19, 2007 10:14 AM

"Oh yeah? There are millions of Americans that may be told they can choose to not show up for a week or two or three during the year but they'll get squat while they're off."

Matthew's point is that if you mandate 6% paid vacation days for those folks, their total yearly compensation will fall by 6% to account for their doing less work, even if the vacation days are technically paid.

And again, while I appreciate the logic behind his point, I don't things will work out precisely that way in a real life setting for a variety of reasons.

Posted by Petey | July 19, 2007 10:17 AM

I'm not sure Matt's even saying that. He's just saying that that worker's productivity will be 6% less, give or take, and that someone has to eat that loss: the worker, the firm, or the consumer.

Posted by kth | July 19, 2007 10:26 AM

I'm with Tim on this. More vacation can lead to greater productivity. The two weeks normally granted to American workers isn't enough to take a real vacation because most of it will get eaten up with family obligations. And for many people, family obligations only add to their stress level.
I'm a little extreme, but I try to take two months off every year. If I didn't, there is no way I could deal with my high pressure work environment. And it really doesn't cut into my wages. Let's say I work 45 hours per week instead of 40. If I do this, I've made up the lost work time from my vacation. Of course, I really work 60 hours per week, but it's better than working 53 hours per week with only two weeks vacation. Admittedly, I am very fortunate to be able to negotiate this kind of situation with my clients, and it only works because I charge by the hour.

Posted by fostert | July 19, 2007 10:27 AM

I think the government should mandate free ice cream for all salaried employees. Only moronic wingnuts would think the ice cream wouldn't be free.

Posted by JP | July 19, 2007 10:29 AM

Petey and Bloix are on the right track here, though Bloix is wrong that it's in any way related to left-right-ism.

Here's the thing: you don't get paid $X because your employer thinks you produce $X in value, or $X+n in value. You get paid $X because that's what the market will bear. Supply and demand, remember? So, if you mandate, say, 4 weeks a year of paid vacation, the question is, how does that affect the supply and demand for labor? You have a few possible answers, and I have no idea which one is right. You might see a decrease in the demand for labor as employers automate, outsource, or temp out jobs rather than hire people they know will be gone a month of the year. Then you'd see wages drop. You might see an increased demand as employers high a few more people to cover for the guy who's on vacation, and then you would see wages rise. Unless the supply goes up as people enter the workforce to compete for those jobs, and then you'd see wages stay flat or decrease. Or, your productivity could drop because you're gone 4 weeks a year and then there would be less demand for your services, so wages would drop.

Anything I'm missing here? I only took a couple of econ classes, but this was covered in Econ 1.

MY's larger point -- that a "paid vacation" doesn't mean the employer is going to put more money into payroll out of the kindness of his heart -- is valid.

Posted by too many steves | July 19, 2007 10:29 AM

Matthew's logic has led him astray here. Yes,
of course, paid vacations are in some sense an
accounting fiction. However, there's a major
distinction in how companies view paid vacation
and unpaid vacation.
Basically, paid vacation is seen as an entitlement. Unpaid vacation is seen as
discretionary and may be seen as reflecting
on your sense of drive/commitment.
The other part is that your fellow co-workers
won't "blow the curve" by skipping their paid
vacations 'cause they'll lose money. OTOH, its
difficult to compete with a co-worker if you take
a month of unpaid leave and he doesn't.

Posted by Raj | July 19, 2007 10:30 AM

Does MY believe in increasing the minimum wage? Does he believe that it results in any real world improvement for workers? Because it seems like the logic he uses to dismiss the effect of increasing vacation time is the exact logic used to dismiss the effect of increasing the minimum wage.

Posted by OhioBoy | July 19, 2007 10:41 AM

Seems like Tim hit it in the first comment. It's wrong to assume that shifting X% of a worker's time into vacation would result in an X% decline in their productive output. Judging by where Americans are in the international hours-worked comparison, it seems very likely that we're erring on the side of too much work (if one's goal is to provide workers with maximum possible compensation).

Posted by Tom | July 19, 2007 10:42 AM

"Many jobs have lots of slack, and an additional week off per person may simply shift some work onto others or shift the work into other periods for the same employee. If there is no decrease in production, then there is no reason to cut wages."

That is a huge assumption to hang your point on after you call Matt idiotic. Work can't always be time shifted.

"(1) by cutting wages and salaries of those who take the vacations; (2) by a reduction in a return on capital (reduction of profits to shareholders); (3) by a reduction in the obscenely inflated salaries, benefits and perks paid to top management; (4) by a modest rise in the prices of the firm's products or services."

Which do you think a company is going to choose every time. 1 or 4, which means Matt is correct. 2 is a non starter. 3 would be nice, but, in reality, doubtful.

"In fact, it is possible that wages in some areas might rise. If a firm must replace the vacationing worker, then the firm must go deeper into the labor pool and may have to offer higher wages to attract competent employees. Or it may have offer more overtime (at time-and-a-half) to those who want it, increasing average wage rates."

So in essence the government is forcing a company to pay $2.5 dollars for that week for every $1 it paid before. And that cost somehow won't be passed on to the consumer?

Posted by Dave | July 19, 2007 10:42 AM

Reading Matt's blog entry, and in combination with the previous one, I think he's been infected with the Econ 101 bug. It's the bug that takes the simple logic of supply and demand curves and tries to apply them to real life. Raise the minimum wage, and employment will drop. Mandate additional vacation time and wages will drop. The truth is that this logic simply doesn't work. Higher minimum wage does not lead to less employment, and mandating vacation will not necessarily lead to lower wages. One can start with the obvious fact that the French work 35 hours per week, and get minimum 5 weeks paid vacation time. Yet because their hourly productivity is so much higher than their American counterparts, they are paid much more than you would expect. Matt is simply thinking too much like a freshman economics major; except that it doesn't actually work like it does in Econ 101. That's why there is Economics 201, 301, etc., to get into the real life details they glossed over in 101. And sticky prices and wages are just the beginning.

Posted by Different Tim | July 19, 2007 10:43 AM

Fostert - I don't know how u do that. I bill $150 an hour so if I take a week off that costs me 6k. A week at the beach just isn't worth 6k to me. To take 2 months off - which I could easily do - would cost me nearly 50k.

And from a progressive prospective shouldn't I work and donate that 50k to charity rather than "spend" it all on leisure for myself?

Posted by Jmo | July 19, 2007 10:43 AM

"One can start with the obvious fact that the French work 35 hours per week, and get minimum 5 weeks paid vacation time. "

I can't believe anyone is holding the 35 hour work week in France up as a model when it has been so economically disasterous for the French causing many of it's brightest young talent to leave the country for better wages

Posted by Dave | July 19, 2007 10:46 AM

The other flaw in Matthew's argument, which lots
of people have pointed out, is that wages don't
have a very tight relationship to productivity.
Mandatory vacations, pregnancy leave,
social security and other benefits are a way
of setting what kind of playing field you want
as a society. Given the playing field, companies
have to figure out how to make a buck.

Posted by Raj | July 19, 2007 10:47 AM

Here is an article discussing what I was talking about.

http://www.timesonline.co.uk/tol/news/world/europe/article1719875.ece

Posted by Dave | July 19, 2007 10:49 AM

Dave said: I can't believe anyone is holding the 35 hour work week in France up as a model when it has been so economically disasterous for the French causing many of it's brightest young talent to leave the country for better wages

Any facts to back up that statement? Sounds like the usual "Europe is on the brink of disaster" nonsense that I've been hearing from conservatives for at least 40 years now.

My anecdotal evidence is that the restaurants in Paris and other French cities seem to be doing a pretty good business, and it's not just tourists patronizing them. I wonder how many French would agree with you about their "disastrous" economy.

Posted by Virginia | July 19, 2007 10:58 AM

Jmo: I'd agree that a week at the beach wouldn't be worth 6K, but for me, a two month vacation in China is worth 50K. But the point was that I wouldn't be able to work those extra hours if I didn't get a break once a year, so it isn't really costing me anyway. Furthermore, the money isn't really all that important to me if I have no time to enjoy it.

As to the progressive perspective, I don't really consider myself a progressive. Yes it's nice to donate every now and again, and I do. But I am simply not willing to live a life devoid of enjoyment. Furthermore, a two month trip to China can be very educational.

Posted by fostert | July 19, 2007 10:58 AM

"And from a progressive prospective shouldn't I work and donate that 50k to charity rather than "spend" it all on leisure for myself?"

Progressives aren't big on charity. We prefer collective action rather than individual generosity.

See Jamie Surowiecki's short piece in the New Yorker for a better illustration of the progressive mindset.

We don't want you to buy a Prius out of personal virtue. We want the government to act so that cleaner cars get cheap and common enough for everyone through the magic of the market guided by sensible regulation.

Posted by Petey | July 19, 2007 11:05 AM

That's perhaps a defensible trade off (the French certainly seem to think so) but there's a real price to be paid.

I don't think anyone fails to realize this, though, of course, the is the argument that some productivity and health benefits will be gained from better-rested workers.

I think the thing Ezra's nailed has been the way our culture forces us to think of the public good in terms of the bottom line, rather than quality of life. Adding two more weeks of vacation may cut someone's work hours by 4%, but I suspect the QoL gain will be substantially greater. The vast majority of workers, however, don't have any mechanism by which they can push for their interests in the matter (should they, indeed, feel this is a trade worth making) since the evisceration of the unions. The state may not be an appropriate mechanism to rectify this, but it's clearly a serious deficiency of our current economic balance.

Posted by Anthony Damiani | July 19, 2007 11:09 AM

so economically disasterous to France

[insert standard Princess Bride line here]

Posted by Jeffrey Davis | July 19, 2007 11:14 AM

Um, France had some near-riots not too long ago about the state of their economy. Then there are the strikes. Yeah, sign me up for some of that.

Also, I'm glad Petey just comes out and admits that "progressives" aren't too big on doing good things themselves -- they're big on *other people* doing good things.

Posted by too many steves | July 19, 2007 11:21 AM

"Also, I'm glad Petey just comes out and admits that "progressives" aren't too big on doing good things themselves -- they're big on *other people* doing good things."

Progressives are big on *all of us* doing things together. We recognize that problems that fall within the Tragedy of the Commons sphere are best addressed by collective action, not individual virtue.

Mandating paid vacation time solves some problems that relying on virtuous and kind employers, or on charitable wealthy employees, will never solve.

Posted by Petey | July 19, 2007 11:29 AM

Well, this is an entertaining read. Do you suppose that if Matt said there is no such thing as a perpetual motion machine, free lunch, or Santa Claus, a passel of pissed off progressives would call him an idiot who never progressed past Physics 101 or Econ 101 and a cynic to boot?

Posted by ostap | July 19, 2007 11:37 AM

Um, France had some near-riots not too long ago about the state of their economy.

On the one hand "Near riots".

OTOH, France's economic growth has often eclipsed that of the US. 73-79. 2000-2002. Growth in France is usually slightly lower than in the US, but it's "disasterous" only in rhetorical fever swamps. Slower growth is still growth.

Posted by Jeffrey Davis | July 19, 2007 11:52 AM

Even if people are working too much now, decreasing their hours will increase their productivity per hour, not their absolute productivity. Even an overworked employee's marginal productivity is not a negative number. A more plausible argument in support of mandatory vacation is that its costs are lower than what you'd expect on a linear extrapolation, so the tradeoff is more advantageous than you would assume. But there's still a tradeoff.

Posted by JP | July 19, 2007 11:59 AM

You can't conjure up free money?

"Progressive econcomic thinking" is certainly coming around

Oh, and fringe benefits are part of what they actually pay you for the job? What university is you pal teaching for?

Posted by Jozef | July 19, 2007 12:03 PM

1) With "progressives" like Matthew, I wonder why we ever bothered to abolish slavery.

After all, economic models show that the slaveowners would react to the higher wages by simply cutting back on the cotton crop and throwing the Afro-Americans out of work.

Come to think of it, a reasonable "economic" argument can be made for child labor.

2) Maybe I can end this farce by suggesting that if plutocrats don't end economic injustice, then we should cut their goddamm throats.

Then the plutocracy can compute the economic cost of a police state to protect themselves --along with the risk of said police state turning on them -- and decide to give a slightly larger slice of the pie to the unwashed rabble. Not much larger , you understand.

3) Next the plutocracy can direct their buttkissing sycophants -- the paid hangers-on in the churchs , in the universities and in the media -- to put out a bunch of misleading sophistry about the benefits of the rule of law, the value of "moral reasoning", and the reason why vicious exploitation is actually a law of the universe about which nothing can be done.

Maybe add a greasy smear of erudition to the tripe with some quotes from Darwin taken out of context.

4) On the other hand, maybe the plutocracy will decide that they can steal $4 Trillion from the rabble's Social Security/Medicare Trust Fund and use the money to set up something called the "Department of Homeland Security" to deal with "terrorists".

Posted by Don Williams | July 19, 2007 12:07 PM

"Near riots" in France over the state of their economy.

It is a laugh reading this blog.

Islamofascists burning cars and stoning police about the economy?

Hamas and Hezbollah must want some serious economic reforms. Maybe they want paid vacations (armed) to Iraq or even to France.

Posted by Jozef | July 19, 2007 12:09 PM

Don W, I liked "Lord it's hard to be Humble", a great song, but your latest song about the police state and "plutocracy", people will just laugh at you. (O.K, maybe you can get a gig at a coffee bar in the Bay Area or lower-east side (L.E.S. we call it here)

Of course, that would only be more evidence of the man putting you in your place. You used to be huge, fella.

Posted by Jozef | July 19, 2007 12:17 PM

Re: You're paid for the work that you actually do.

That's not quite right: you are paid for some fraction of the total work that is done by all employees at your employer, with that fraction determined by the employer who decides arbitrarily and often inaccurately, what share of that work was yours. (Moreover a big share of proceeds from the total work done by employees does not even get paid to employees, but ends up as profit, dividend, etc.) Work is fungible and anyone wo has ever worked at any business wher there are more than two or three employees knows that compensarion is not rigidly proportional to work done. All too often the highest paid people are the not the most productive workers, and vis versa.

Re: The two weeks normally granted to American workers isn't enough to take a real vacation because most of it will get eaten up with family obligations.

What do you reckon as a "real vacation"? Three weeks off all at once? If that's what you like then go for it, but don't presume to dictate other people's preferrences. Many of us would rather scatter our vacation days around the calendar, giving ourselves lots of three and four day weekends instead of one big stretch of down time. Unless I am doing major travel (like the two week road trip to California and back I took in '04) I've found that after four consecutive days off I'm actually glad to get back to work. Also, as you point out, family life comes with its own stresses, and for mny people work is a refuge from those stresses even as hoem is a refuge from the stresses of work.

Re: That is a huge assumption to hang your point on after you call Matt idiotic. Work can't always be time shifted.

Some work can be and some can't be. Obviously direct customer service can't be time shifted (the resturant owner can't tell patrons, "Come back next week when all my waiters are back from vacation"). On the other hand most office work, and even some manufacturing and construction work, can be time-shifted. Obviously this becomes increasingly difficult as the time interval lengthens, but usually a day or two is not significant. If it were, weekends and holidays would also be impossible to accommodate.

Posted by JonF | July 19, 2007 12:17 PM

"Islamofascists burning cars and stoning police about the economy?"

No, I was talking about all the spoiled white kids taking to the streets because the govt was talking about reforming the labor laws.

Posted by too many steves | July 19, 2007 12:32 PM

Guess what, they were the Islamofscist youth as well (labour unrest my arse)

BTW why do you say "spoiled white kids"? Isn't that redundant? Aren't they all spoiled? I was spoiled myself as I worked and served in the military, nothing but spoiled. Everything on a silver platter, that's the way it is for us of course. You too?

Posted by Jozef | July 19, 2007 1:14 PM

Re "Don W, I liked "Lord it's hard to be Humble", a great song, but your latest song about the police state and "plutocracy", people will just laugh at you. "
----------

1) Actually, what people laugh at is Country Music. Because its content is dictated/controlled by a bunch of rich fatass parasites in Nashville and hence it is only listened to by morons.

The only REAL country music worth a damm is from the 1950s -- before the corporate oligarchs got nervous and tightened the clamps:

" You load sixteen tons, what do you get?
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store "

2) That's why you will never hear the Country musicians singing about the Coal Wars -- of how people freed themselves from economic slavery by blowing up a couple of coal mines and killing a couple of Pinkerton thugs. Of how the UMW was really built by men that the Republicans would call "terrorists"

3) Just as you won't hear about the Pittston Coal Strike of 1989-90, of how crooked judges stacked the deck and levied massives fines on union leaders, and of how it took someone blowing up electrical transmission towers to finally get a decent deal for the workers.

4) Country Music is corporate propaganda -- worst and more deceitful than Fox News.

Posted by Don Williams | July 19, 2007 1:18 PM

Virginia:

"I wonder how many French would agree with you about their "disastrous" economy."

Calling the French economy "disastrous" is clearly a straw man, but enough of the French agreed that it was in need of serious reform that they voted for the presidential candidate promising it (Sarkozy). It's also worth noting that so many young, smart, industrious Frenchmen work in London now (because of greater economic opportunities there due to Britain's more free-market-oriented economic policies) that Sarkozy actually campaigned in London for this ex-pat vote.

Posted by Fred | July 19, 2007 1:35 PM

Will Wilkinson offers a spirited defense of Matt's post here: http://www.willwilkinson.net/flybottle/

Posted by Buchanan | July 19, 2007 1:39 PM

I'm jumping in on this late, but:

1) Labor economics has long since moved on from the simplistic supply and demand model that implicitly underlies MY's post. In pertinent point, the theory of efficiency wages suggests that employers deliberately pay a wage higher that what they would absolutely need to pay because they want to be able to get the best effort out of their workers. So there is no reason to think that an increase in workers absolute compensation need also increase their relative compensation: more vacation time may well generate greater effort, higher hourly productivity, and a stable labor and capital shares of output (and hence stable profits).

2) This history of capitalism is replete with numerous examples of statutory reductions in working time (the 10 hour day, the 8 hour day, the 40 hour week, etc.). It is just blindingly obvious that none of these reductions in working time - each of which reduced working time by much more than 80 hours a year - failed to devastate any affected economy. Marx tells the story of the 10 Hour Act in Capital, volume 1, and demonstrates that, indeed, reducing working time led to increased productivity, even though employers warned ahead of time that poverty and disaster would ensue.

3) On France, as this post eventually gets around to showing, the rate of employment growth in France accelerated significantly after the 35 hour week was introduced, and only decelerated once Right returned to power.

http://www.ecotality.com/blog/2007/what-are-the-metrics-what-do-we-consider-lessons-from-examining-the-french-economic-situation/

Posted by Rich C | July 19, 2007 2:24 PM

Not necessarily. If people become more productive as a result of added vacation -- because they concentrate better, become more focused, are better rested -- then the regulatory mandate would effectively conjure up free money. The company's output will increase, and it can afford to pay everyone just what they get now even with additional vacation.

This sounds a lot like tax cuts that pay for themselves.

Posted by TW Andrews | July 19, 2007 2:55 PM

Fred above points out that many French are now seeking higher wages in Britain.

Correct me if I'm wrong, but don't the Brits get those long vacations too?

(I suspect the continuing strength of the Pound has something to do with this.)

Posted by Virginia | July 19, 2007 3:09 PM

Simply astounding and depressing that Matt tries to make a There's No Such Thing As A Free Lunch argument and is shredded by some "progressives" for being a right-wing tool. Maybe things aren't as cut-and-dried as Matt says. But there ISN'T such a thing as a free lunch. There would be consequences for someone, quite possibly the worker, if more vacation was mandated. Arguing otherwise is bizarre.

Posted by Chris | July 19, 2007 6:56 PM

I'd really like to hear the case for the "There is TOO a such thing as a free lunch" position.

Posted by too many steves | July 19, 2007 7:00 PM

Of course there's no such thing as a free lunch. The question is, who pays? Matt believes that if a worker's hours are cut, the employer will pay him less because the worker is selling the employer fewer hours. But the price of an hour of labor isn't fixed. If the supply of labor is cut by government mandate, then the price of a unit of labor will go up. Where will the firm get the money to pay for the increased unit cost of labor? From profits. Returns to capital - whether to shareholders or to top management - will fall. This is what happens whenever there is a government-mandated cost to companies, from pollution control to job safety. It's not a big deal. Does anyone think returns to investment in the US are so low that this will jeopardize the economy?

Will the increased unit cost of labor be enough to off-set the reduced hours of work? That depends on the relative bargaining power of employees and firms in the specific sector and given the specific skills of individual employees.

The one thing that will NOT happen, beyond a shadow of a doubt, is a one-to-one reduction in wages to compensate for reduced hours worked. Matt thinks that's what will happen. He's wrong.

Posted by Bloix | July 19, 2007 7:11 PM

Instead of mandating employee benefits, why not just attack things from the front end: increase the bargaining power of labor so that total employee compensation really will rise, and then let workers use their increased bargaining power to work out the details to their taste.

That means:
1) repeal Taft-Hartley
2) repeal the assorted labor relations acts for the transportation industry, with associated mandatory arbitration and cooling off periods

Posted by Kevin Carson | July 20, 2007 12:00 AM

I just took a job with a company that had been bought out by a firm based in Sweden. I'm frankly astounded by how fast sick days and vacation add up, and you don't lose sick days. They applied sick time retroactively after they took over and a friend of mine who is taking six-weeks off for recovery from a foot surgery had enough to cover the whole thing. She'll have vaction time left over if there are problems.

Reading this, I'm wondering if people aren't realizing what their work is billed at and how much your boss is sticking in their pocket.

Posted by Ed Marshall | July 20, 2007 12:26 AM

I'm jumping into this very late, and somebody may have already made these points, but ...

In a competitive labour market (big assumption, I know), then I would have thought that the incidence of an employer mandate would the same as the incidence of payroll taxes (employer social security contribution) - that is, in the long run the cost falls onto the employee. There obviously won't be an immediate cut in wages for the employee, but over time, the employer will increase wage rates more slowly than they would otherwise have done, until the total cost of employing someone gets back to its original real level.

Now of course during that transition time the workers productivity could be increased by having more holidays, so the effect will be attenuated, and productivity might increase for other reasons, so nobody might see what has happened as a cut in wage rates.

Moreover, even if wages are ultimately lower in real terms than they would have beeen in the absence of the employer mandate, then this does not mean that the worker's wellbeing is lower, unless thay would have preferred the money rather than the time off.

There is rather a lot of evidence that even France has a competitive labour market in this sense. Have a look at http://www.oecd.org/document/17/0,3343,en_2649_201185_38148433_1_1_1_1,00.html

Here you will see that total labour costs in many European countries are rather similar (adjusted by PPPs) even though employer social security contributions vary enormously (about 30% of total labour costs in France but about one-third of this level in the Netherlands, Switzerland, Luxembourg etc).

Put another way, it is not the employer who pays the employer social security contribution or any other mandate - ultimately it is the worker. Standard fiscal incidence.

The problem that the French have is that lots of employees actually seem to believe that it is the employer who pays, and they then complain about the low purchasing power of their wages (but not about their health care, pensions or unemployment benefits - which is where the money is going).

Of course, precisely the same thing happens in the US with employer-sponsored health care, even if it is not a mandate.

Posted by Disinterested Observer | July 20, 2007 5:39 AM

I`ve noticed that Germans seem to make a wage comparable or better than Americans AND they get about six weeks of paid vacation a year. And their health insurance is available regardless of preexisting conditions or employment.

This stuff about no free lunch is crap. Germans see companies making large Gewinn and they insist that workers should get their fair share of that. Unions are very powerful here and companies know it. Sure they go overboard sometimes ... the Lokfuhrer are asking for thirty percent raises now... being offered 4 percent.

The no free lunch arguement is crap ... the companies execs and stockholders are getting more than their share. Vacation time and leisure are essential for mental and physical health and that could mean lower health care costs.

The other angle is that the people in power want the masses to stay close to home, because if Americans traveled the world more or had more time to really think about how FUBAR their country has become they would realise that we are not even close to being the best country in the world. American workers should fight for better working conditions and stop drinking Matthew`s absurd kool aid.

I wanna know why other country`s can do it.

Posted by Expat in Germany | July 20, 2007 1:14 PM