Vacation Mandates, Again

To continue this fight endlessly, I think Ezra Klein is completely misinterpreting the fact that higher-skilled workers get more vacation. There's a tradeoff between leisure and income. The more income you already have, the more interested you become at the margin to have more leisure rather than more income. We can see this from the exciting world of journalism, where the appeal of, say, earning $150 writing a Comment is Free piece instead of watching your The Shield season one DVD is going to have something to do with how much money you're earning from other sources.

This brings us to yet another problem with mandatory vacations -- it's regressive. Leisure is a "superior good" the kind of thing people put more value on the more money they already have. Working class people struggling to earn enough money to pay the bills aren't going to be made happier if they have more time off but earn less money. The sort of pernicious status competition cycles that Ezra postulated as the reason we can't leave this up to the free market are going to be most applicable way up near the top of the income distribution -- it's very plausible that Rich Lawyer A is putting in the hours primarily to show up Rich Lawyer B, but Convenience Store Guy is putting in the hours because he actually wants the money.

This all goes back to the issue of whether or not there's really such a thing as paid vacation. If you believe that additional vacation days procured for people through government mandates won't result in proportionate decreases in their money income, then of course mandating more vacation time is a good idea. Similarly, if I thought that mandating that all employers provide their employees with free cable wouldn't result in a proportionate decrease in their money income, I'd favor that, too. But the world doesn't work like that.

Comments

Are aliens beaming Econ 101 into your head? Where is this sudden love of marginal analysis coming from?

Posted by walt | July 23, 2007 5:00 PM

So Matt, what's the difference between "paid vacation" and the "minimum wage"?

Posted by Meh | July 23, 2007 5:02 PM

Are you also against a 40-hour work week?

Posted by Jon | July 23, 2007 5:06 PM

I think there's money to be made here regarding this mandatory vacation issue. Here's what you do. Set up a clearinghouse of some sort, a Monster.com but just for people that are being forced to take off vacation time they can't afford. Even if it's paid they're missing overtime possibly. Whatever. Now, you specialize in providing jobs other people need done where short timers will do. Two weeks work. Your clients are too poor to take a real vacation and could use the extra cash. Now they have two paychecks, their real job and their new two week assignment. Minus your 10% fee of course. Brilliant! See you in Monaco.......

Posted by steve duncan | July 23, 2007 5:07 PM

Your arguments are long on macro economic thought experiment type assertions and short on studies that actually look at the marginal effect of vacation time on productivity and income. If you have actual proof that mandated vacation depresses income, go ahead and cite it.

Sure it SEEMS tautalogical that it would. But you know what? Economic arguments that SEEM tautalogical often aren't. Theoretically, increasing a mandated minimum wage should depress employment, but there have been a number of studies that have found it's not true! This is because economic systems are extremely complex and don't necessarily behave the way simple models (which is what your argument is based on) might predict.

(see, for example http://www.epinet.org/content.cfm/briefingpapers_bp150)

This isn't to say your wrong per se, but I have no reason to believe your right, absent your sourcing to reliable data.

Posted by IMU | July 23, 2007 5:21 PM

This isn't to say your wrong per se, but I have no reason to believe your right, absent your sourcing to reliable data.

IMU--given our consensus that Matt's "simple" model would produce the outcome he describes, maybe it's more equitable to put the onus on you to come up with evidence that MY's wrong, rather than the other way around. (Unless it's in your link, which I couldn't get to work.) To put it differently, none of have any reason to believe Matt's conclusions are off, unless you can give us one. (And "real life is complicated" isn't an empirical reason.)

Posted by DJ Ninja | July 23, 2007 5:29 PM

Yeah, seriously, Matt, what is the real-world basis for your argument here? I'm seeing nothing but Econ 101-level platitudes. In your prior piece, you even acknowledge that wages are sticky. It is incredibly unlikely that any meaningful number of workers will see a 4% pay cut on the day that their new vacation rules take effect - it's simply not how HR departments work.

So is it "free money?" Of course not. Maybe the next pay raise is delayed. Maybe some marginal worker doesn't get hired. Or maybe reduced absenteeism and improved morale make the enterprise more productive. But none of these represents a meaningful loss of utility for the worker - the pay raise was theoretical anyway (and, as we've seen over 32 of the last 35 years, unlikely anyway), in a healthy economy that marginal worker will get hired by someone, and obviously the last is a win-win.

FWIW, I don't think it's about "vacation" time, or leisure, per se. It's about schedule flexibility and autonomy. If the mandate is "paid time off," whether sick time or vacation, then this benefits everyone who has family obligations, health concerns, or a wicked hangover to sleep off. The Leisure Class are not the only ones who benefit from time away from work, Matt.

Posted by JRoth | July 23, 2007 5:31 PM

No, sorry, DJ, Matt doesn't get any benefit of the doubt for making simplistic assertions with no evidence. The way arguments are supposed to work is that you present both evidence and explanations. But Econ 101 bullshit simply isn't good enough.

If Matt can point to a single real-world example, then his platitudes get some credence. Until then, I don't believe that raising the minimum wage lowers employment, that the sun revolves around the earth, or that a paid time off mandate would broadly reduce paychecks, no matter how "simple" those models are. Show, don't tell.

Posted by JRoth | July 23, 2007 5:37 PM

Then I suppose universal health care is regressive because health care is a superior good as well, people buy more coverage as they make more money.

If jobs are mandated to include paid time off (PTO) nothing says the worker has to take a vacation, they could write Comment is Free columns, wait tables, or there could be buy back provisions.

Admittedly, there are many unknowns and possible downsides in Ezra's still vague leisure proposals, but your counter arguments seem to be designed to set up straw men for Ezra to knock over.

Posted by AJ | July 23, 2007 5:38 PM

Sure, an additional dollar might be worth less to a very rich person than a relatively poor person, but time is also more valuable for well-paid individuals. Taking a week off when you earn $400 an hour is much more costly than taking a week off when you earn $20 an hour.

I have no doubt that status competitions apply to lower income workers. Working long hours isn't just about earning money, it's also about protecting one's job given low levels of worker bargaining power. If bargaining power is limited, workers might be unable to ask for either higher wages or vacation time, because such requests will disadvantage them relative to a large pool of similarly skilled workers, and very well might cost them their job. Mandating vacation solves this problem.

Alternatively, increase worker bargaining power, and let them negotiate the income/leisure mix for themselves.

Posted by ryan | July 23, 2007 5:39 PM

The superior value of Time for many people begins at subsistence. See "Walden".

Posted by Jeffrey Davis | July 23, 2007 5:40 PM

I sort of agree.

The European bundle of welfare state protection includes some elements, such as the vacation requirements and inexpensive college education, that primarily benefit the upper middle class in this way. These benefits may help prevent the upper middle class from defecting from the European style welfare state model.

Posted by joeo | July 23, 2007 5:48 PM

Increased vacation time has no discernible effect on productivity, and therefore should not affect wages at all. Econ 102, bitches!

Posted by Anonymous | July 23, 2007 5:49 PM

OK, so if you have money, the income effect kick in, and you substitute work for leisure. With redistributivist policies, more people reach this treshold, and leisure become more attractive. This isn't rocket science. Weak welfare state, weak support for long vacations. Strong welfare state, strong support for long vacations. Matt is right that money is not magically appearing. You just have to take it from the people who enjoy diminishing returns from it.

Posted by Dan Karreman | July 23, 2007 5:59 PM

JRoth says, "If Matt can point to a single real-world example, then his platitudes get some credence. Until then, I don't believe that raising the minimum wage lowers employment, that the sun revolves around the earth, or that a paid time off mandate would broadly reduce paychecks, no matter how 'simple' those models are. Show, don't tell."

Which is a minor masterpiece of poor argumentation. What do the scare-quotes around "simple" imply? Is he arguing that the model that he doesn't want to be true actually isn't simple? In what way?

He also attempts to set up a connection between "simple" (or "'simple'") and "wrong," which is a fundamentally silly idea (are we to imagine that there are no simple truths?), and can't even find any good simple-and-wrong models. The geocentric model, epicycles and all, isn't simple -- rather, the main draw of heliocentrism was that it explained everything in nice ellipses.

Posted by Michael B Sullivan | July 23, 2007 6:02 PM

When you have a job, which you can do when tired, you want the higher rates of pay, that come with overtime. Vacations don't come with overtime pay.

otherwise, what ryan says.

p.s. I predict that Matthew is going to follow the well-trodden path from youthful liberal to reactionary middle-aged guy, a la David Brooks.

Posted by Bruce Wilder | July 23, 2007 6:09 PM

This is why living life according to a free market is, for lack of a better word, evil. It creates a society of stressed out psychopaths that get off on seeing other people suffer.

Seriously, is there really any way to argue with that intepretation of our culture? some of us, and for others our parents, have created a system in which evil is rewarded and good is punished. It is as such inevitable that we would become the sort of country George bush has crafted. And it was inevitable there would be so little resistance.

Why do people talk to Jroth. The man is clearly a conservative, and as such he can not be reasoned with. He has chosen to discard logic and analysis in favor of a fatter wallet.

Posted by soullite | July 23, 2007 6:10 PM

Pay attention, dumbass. The "scare quotes" are A. quoted from another comment, and B. in quotes in the other comment. So your first para turns into a minor masterpiece of meaninglessness, all clothed in a condescending sneer. Brilliant.

And no, the pseudo-scientific version of geocentrism wasn't simple, but it was based on the kind of simplistic thinking embodied in the phrase "Econ 101." The basis of Matt's claim is a simplistic observation about how wage negotiation and the economy work, just as the basis of geocentrism was a simplistic observation about what the sun appears to do. And, as the directly-relevant minimum wage example shows, Matt's simple model deserves no particular respect.

Posted by JRoth | July 23, 2007 6:10 PM

OK, this may seem odd coming after my nasty response to Michael B Sullivan, but:

What the hell is soullite talking about? I'm arguing in favor of mandated PTO here. Why on earth would soullite think I'm A. conservative or B. in favor of a fatter wallet?

I mean, I suppose that I am in favor of a fatter wallet, but I'm not particularly pursuing it. If soullite would like to contribute to the JRoth Fatter Wallet Fund, I'm OK with that.

Posted by JRoth | July 23, 2007 6:14 PM

Jeez, JRoth -- you're accusing Matt of platitudes, and then you pop up with a strawman like "It is incredibly unlikely that any meaningful number of workers will see a 4% pay cut on the day that their new vacation rules take effect - it's simply not how HR departments work"?

We both know that Matt didn't argue any such thing, so what's with the empty rhetoric?

Posted by AlanC9 | July 23, 2007 6:15 PM

Is it empirically true, all else being equal, that people making more money take more vacations?
Do the top actors work less than actors making less per picture? Do CEO's vacation more than CFO's? Do doctors take more time off than nurses? Should be a lot of easy evidence out there.

Posted by bob mcmanus | July 23, 2007 6:23 PM

It's entirely possible that any mandated vacation, paid or otherwise, would just get passed onto the consumer in the form of higher prices. The argument that minimum-wage laws and other mandates result in lower wages/less employment have to assume that firms are mostly price-takers. Of course, many of the biggest employers in the country have at least some leverage over prices.

Which is more likely for Microsoft if they faced increased mandated vacations: A. They pay their engineers less because their operating costs have risen or B. we all pay a few bucks more for Windows Vista? While Microsoft might be an extreme example, it's likely true of other major firms/industries to varying degrees.

As far as efficiency arguments go, it's entirely possible that net productivity could actually increase due to increased vacation time, leaving the overall effect on the economy neutral or even improving. Depends on the significance of these competing effects (the real-world is, like, hard), but it's not inconceivable that the economy and individuals would benefit from increased vacation as opposed to, say, mandating free cable.

Posted by TF79 | July 23, 2007 6:36 PM

AlanC9-

Actually, I read this post by Matt as saying pretty much that - that "additional vacation days procured for people through government mandates [will] result in proportionate decreases in their money income." 2 weeks out of 52 is ~4%, so that would be a "proportionate decrease in their money income."

Did I completely misread this post? Is Matt somehow not claiming that gov't-mandated PTO will result in paycheck decreases? That seems to me the simple reading of his post, and what I responded to. Perhaps my phrasing was platitudinous (I'm not sure I agree), but it was a direct response to Matt's claims, especially as juxtaposed against what he admitted in his last post.

I might add that I also addressed other ways that PTO could change the labor market - I did not simply construct a strawman to knock down.

Posted by JRoth | July 23, 2007 6:38 PM

Oh, and I just noticed another stupidity in Sullivan's masterpiece:

can't even find any good simple-and-wrong models

And what about "raising the minimum wage lowers employment?" Is the model upon which this is based complex, or right? I'd love for you to defend either claim, Michael.

So I think that may make an entire comment without a single correct thing in it, except for the epicycle bit, which was, of course, missing my point. Brilliant.

Posted by JRoth | July 23, 2007 6:43 PM

There are lots of bosses who don't want to give any time off at all; for someone scheduling a crew, zero guaranteed time off for anyone is the ideal, just as zero guaranteed work hours for anyone is the ideal.

Plenty of low-paid workers still want time off even though they're poor. It is also true that there are plenty of low-paid workers who would prefer to work 80 or 90 hour weeks, but framing this simply in terms of worker rights is a libertarian delusion.(Forced overtime has been a major issue in many labor disputes; not all workers want overtime, even with the overtime premium).

Paid time off, the 40-hour week, and full-time benefited jobs all inconvenience employers and reduce "labor flexibility". In a pure market environment, none of them would exist, and workers would be completely at the mercy of employers.

Matt needs to choose his friends more carefully. Even the most charming libertarian shovels out shitloads of management sophistry.

Posted by John Emerson | July 23, 2007 6:51 PM

Well, it seems there is no shortage of white-collar people ready to place bets and cheer for the racing rats. Economists at universities who take very summer off, journalists who have no problem squeezing in the odd week down east, in fact, just about everybody who has no trouble getting time off when they want it and can afford the high-priced spread.

As for the poor guy making $9 an hour, well, this is a great argument to scare him, 'cuz gawd knows he can't afford a pay cut. Fact is, you work enough doubles and your brain gets a little fuzzy, so as long as people don't form unions you probably don't need to worry about them demanding vacations. Hell, they don't even know what day of the week it is half the time.

Yes, it's a great argument, except for a few little things, like the high quality of European goods or the fact that the Euro is whipping the dollar. Of course, the big thinkers have that covered too, because they figure it's a good thing if your dollar buys less- and why shouldn't they, seeing as how they already have more dollars than they'll probably spend in their lifetimes anyway.

Death, where is thy sting?

Posted by serial catowner | July 23, 2007 6:58 PM

Re: Working class people struggling to earn enough money to pay the bills aren't going to be made happier if they have more time off but earn less money. The sort of pernicious status competition cycles that Ezra postulated as the reason we can't

You might want to ask people about that. I think you'd get some surprising answers.

Re: If you believe that additional vacation days procured for people through government mandates won't result in proportionate decreases in their money income, then of course mandating more vacation time is a good idea.

People at or near the minimum wage (and these are the people least likely to have vacations) won't get paid less because by law they can't be paid less.

Posted by JonF | July 23, 2007 7:20 PM

p.s. I predict that Matthew is going to follow the well-trodden path from youthful liberal to reactionary middle-aged guy, a la David Brooks.

Going to follow? He's already on that well-worn road. Matt isn't stupid; he knows that conservative pundits are promoted far, far more often in the established media than liberal ones are, and he's very aware that his reputation as an "unconventional" liberal - that is, a liberal known for disagreeing with other liberals - has gotten his his current gig. He's also been careful to maintain and even nurse ideological differences with liberals, even on issues where he remains largely ignorant (the environment, land use policy, the economy, etc.) or curiously unwilling to explain or defend his odd clutch of right-leaning views (gun control). Toss in cozy relationship with a large number of libertarian writers and center-right DLC types, and a career-long drift to the right is inevitable.

Posted by Christmas | July 23, 2007 7:51 PM

Matt's instincts on labor issues are horrible. He really does not have any insight into them.

Posted by John Emerson | July 23, 2007 8:13 PM

Ths is such crap.

You show me a single illegal immigrant cleaning lady who's successfully bargained with a hostile employer for vacation time, and I'll believe this econ 101 nonsense.

Until then, I'll assume the reason the boss gets three weeks (and the ability to leave early, as family and other emergency needs dictate) to the employees' two weeks is rather more the artifact of an unequal bargaining system closely tied to class, as opposed to the fact that poor people don't like paid vacation as much as rich people.

Posted by anonymous | July 23, 2007 8:37 PM

"But the world doesn't work like that."

Matt is confusing what is going on in his own head with the way the world works.

Matt's posts on vacation could form the basis for several years of interesting work toward a PhD in economics. Instead he posts them, and - voila! - they are true.

And Bruce Wilder, no fair making that prediction - I made it months ago, except that I think Matt will replace Richard Cohen.

Posted by Bloix | July 23, 2007 8:44 PM

Matt's instincts on labor issues are horrible. He really does not have any insight into them.

That's true.

And as someone who totally agreed that "Why don't you get a job" was the worst anti-punk song ever, I'm sort of aghast to realize you never had one.

Posted by Ed Marshall | July 24, 2007 1:23 AM

A couple stray thoughts.

#1. A lot of workers now have vacation time in theory they can't use in practice. A good government mandate on time off would have to include enforcement teeth. Does anyone have info on how the European nations handle this? I gather vaguely that they do, but who needs yet another bit of uninformed American guessing?

#2. We tend to talk about this in terms of what elites and star performers deserve, but I think that misses the point. The real question is what poorly educated, competent but inspired performers, who lack the talent to ever rise much higher than they are and the charm to sway savage beasts, er, managers to their side deserve. There was a time in the post-war environment when the C- schlubs could nonetheless do their job and get a good life out of it. This "unearned" prosperity was indeed a moving force in the rise of the current conservative movement, with theorists and pundits ready to talk about how the masses were more useful when they have less. We all have a lot of unconditioning to do on this subject, because in my experience, the very suggestion that mediocre boors deserve an actually comfortable life with a margin for health and personal pursuits brings a knee-jerk response in almost everyone in the American educated classes, before we stop to think through just why we react that way. (Not everyone has been conditioned to the same degree, of course, and some have a big head start on getting out of it, but it's very comon. It's hard for us to genuinely believe in the working classes as deserving real creature comforts like people like us do.)

#3. I simply don't believe that American productivity is at such a crucial point that it couldn't bear the reduction that would come from treating all workers decently with regard to time off, even if I were convinced that general time off would hurt productivity much. (As others have noted, Japan, the US, and Europe have widely varying standards of work hours and nothing like matching variation in productivity when all's said and done.) And even if it were true that a general mandate on leave must cost employees 4% pay cuts, I see every reason to believe that the possibility for extra to health concerns alone would make up a lot of it in reduced expense, and more when other sources of reduced stress-induced costs get included.

Posted by Bruce Baugh | July 24, 2007 1:30 AM

On Matt's original post I - rather late in the debate - put in the following comment, in which I tended to support his initial argument, i.e. that in competitive labour markets and in the long run, the final incidence of employer mandates would be expected to be the same as the final incidence of employer social security contributions, and it would be the employee who would pay in terms of wages that would be lower than they would otherwise have been. But this does not mean that people are worse off, unless they would have preferred to have more money rather than the vacation. (See below.)

However, I think that Matt's latest post completely misses the point. Of course, workers with paid leave get paid for their leave - that's why it is called "paid leave". It's irrelevant that the alternative was more money - they are still being paid for their holidays.

I also can't see how paid leave can be described as regressive. Higher paid workers get higher rates of pay, so when they are on leave, they are "giving up" more in money terms than lower paid workers, so for the idea of declining marginal utility of income to be relevant, Matt would need to show that losing a potential $6 an hour for a minimum wage worker is worse than losing a potential $30 an hour for a high paid worker. Having said this, in the long run presumably the foregone higher wage rate for the $6 an hour worker is actually the vacation time divided by the potential working time, so 4 weeks paid leave means that the worker is giving up a wage rate that could be about 8% higher than it actually is (i.e. 4/52).

.................................

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 24, 2007 8:02 AM

Hmm, trying another link:
http://www.epi.org/content.cfm/issueguides_minwage
gets you to the over view page with lots of links, but not directly to the study.

Anyhoo, that's for the minimum wage, which I'll admit is something of a strawman vis a vis the debate over paid time off. I merely mentioned it as an example of a model that 1) seems intuitive, 2) leads to a clear result, and 3) is not supported by data.

Some very interesting posts to this thread so far, but still no links to any studies that show mandated vacation time directly translates into reduced income and/or productivity.

Posted by IMU | July 24, 2007 9:36 AM

Matt,

If you're going to keep up this line of argument (I would not blame you if you didn't!), you need to clarify:

1) If we would be better off without weekends, since these are mandated time off.

2) Why workers with higher hourly pay would opt for more leisure if they are utility maximizers; it would be inappropriate here to introduce an assumption of "satisficing" or a similar threshold effect.

3) Consider game theory: isn't time off in a competitive work place a lot like a prisoners dilemma? If you and your competing co-worker both take time off, then you're both better off, and if you both fail to take time off, you're worse off. But if you take time off and your co-worker does not, you're worst off and your co-worker is best off. You might each prefer to use your (voluntarily granted) days off, but your best response in this situation is not to take time off. Consider how mandating vacation days resolves this dilemma.

Posted by Rich C | July 24, 2007 10:00 AM

Hi JRoth,

In order: There is no apparent reason for your quoting the word "simple" except to imply that it's not actually simple. You aren't referring to anyone else, and the fact that other people also (equally incorrectly) used scare quotes doesn't excuse your use of them. However, people overuse quotes without thinking all the time, so I'm willing to accept your semi-claim that you didn't mean anything by them.

The arguing point for heliocentrism, at the time anyone was seriously arguing geocentrism vs. heliocentrism, was, purely, that heliocentrism was simpler than geocentrism. As such, it is a singularly inappropriate example to prop up the (still ridiculous) implication that simple = wrong.

As to minimum wage: Basically, nobody doubts that the simple model of minimum wage is fundamentally true. If you increased minimum wage in any particularly meaningful way, employment would drop. The claim that some progressives make is that a very minor increase in minimum wage doesn't affect employment very much. There are some complicated stories as to why this is the case, though in my opinion the effect is probably just lost in the economic noise of, you know, real economies. That's why it's another bad example, albeit not one that's nearly as bad as the geocentrism/heliocentrism nonsense.

But, lest we get bogged down in arguing over minimum wage or any other examples, of course some of the time the simple answer is wrong. Despite JRoth's rather inept choice of showcases, I will happily concede that a more talented rhetoricist could have come up with some cases where the simple argument was dead wrong. That doesn't change the fact that the argument, "some simple arguments are wrong, therefor this simple argument is wrong" is, bluntly, moronic. It's probably also dishonest -- I can't believe that JRoth actually believes what he'd like to pawn off on us.

Posted by Michael B Sullivan | July 24, 2007 11:45 AM

Bruce Baugh asked:

A lot of workers now have vacation time in theory they can't use in practice. A good government mandate on time off would have to include enforcement teeth. Does anyone have info on how the European nations handle this? I gather vaguely that they do, but who needs yet another bit of uninformed American guessing?

Well, in Germany the minimum number of vacation days per year (24 for a 6 day work week, 20 for a 5 day work week) are part of a federal labor law. It also regulates your continued pay during vacation time. If you have a fixed monthly wage, you get that money during vacation time too. If your "normal" income changes from month to month (because of overtime, bonuses etc.), an average monthly wage will get calculated using the last 3 months before your vacation.

Enforcing these laws are labor courts. It´s a branch of the judicial system specifically for labor issues.

The employer is required to allow you to take all of your vacation days during the current year (except in extraordinary circumstances.) At least part of your vacation should be in one continuous "block" (customarily at least 2 weeks). Although if you as an employee decide on lots of long weekends, that´s your decision. It simply means that an employer can´t deny you a two week vacation.

You apply for a certain vacation period and the employer can agree or disagree with it. If disagreeing, the employer needs to have a good reason for it though. For example, during school breaks parents with kids in school get a higher priority for vacation time. While a single might get told to take vacation time outside of the school breaks. That´s allowed.
The employer can also close shop for a certain time period in summer and "force" all employees to take a vacation then.

Typically, collective labor agreements in Germany include more vacation days than mandated in the law. Between 25-30 days per year is the norm for a full time employee in most industries.

Posted by Detlef | July 24, 2007 11:58 AM

Re: But if you take time off and your co-worker does not, you're worst off and your co-worker is best off.

How does not taking paid time off make you better off? You're going to get the same pay so it isn't a matter of making more money by working more (except if you are paid hourly and you bave to forego overtime pay during your vacation days). Also, I have never heard of any employer paying an employee for vacation days not used, though I suppose that could be a possibility. But unless there is some monetary reward directly linked to not taking vacation time, you're just cheating yourself.

re: If you increased minimum wage in any particularly meaningful way, employment would drop.

Then why doesn't the real world data show this? Unless "particularly meaningful" means something like "increase by a major fraction, i.e, 50% or more"). Historical increases in the minimum wage have all been by minor fractions, and they reveal no job-loss trend at all.

Posted by JonF | July 24, 2007 1:24 PM

JonF - The company I currently work for offers 4 weeks of PTO. If you don't use all of it they will pay you for up to 2-weeks.

Also, "not taking time off" makes you seem more dedicated than someone who takes every possible sick and vacation day. When it comes to raises, promotions, or layoffs your committment to your job will impact these decisions(in some cases).

I have worked for companies where if you didn't take all your vacation time they though you were an idiot - other companies prided themselfes on people never taking any time off.

Posted by Jmo | July 24, 2007 2:10 PM

I'm a software guy with a family. My ideal job would be part time, I don't need the money from a full time job (my wife works too), and I much prefer to have the time off.

And yet... I hesitate to mention "part-time" when interviewing. Companies don't want to hire part-timers.

On to PTO... When I started out 20 years ago, 2 weeks vacation plus some amount of "sick days" (1 week? my memory is hazy) was the standard. Then, people logically said, employees are going to call in sick all the time to use up their sick days anyway, lets just lump it all together. And so we had 3 weeks PTO, which seemed like a good deal. Now the standard deal seems to be 2 weeks PTO. One of my weeks vanished, and I would like it back.

Back before I had a family, I tended (like most employees) to not use all my PTO, since there was always some kind of crisis or looming deadline. And as others say, it looks good to management if you are always working your ass off (or creating the appearance)

Now, I hesitate to use PTO, because it is a scarce resource, I may "need it" in the near future, so I have to keep some lying around in my account. And of course, 1 week of my PTO vanished somehow over the last decade.

Posted by Steve | July 24, 2007 3:24 PM

I already posted this on Ezra's place but figured I should probably do so here as well:

Anyone who thinks mandated leave would inevitably lead to a decrease in employment or wages most likely has not taken any econ beyond Econ 101. Because if you believe that such results would inevitably follow, you clearly are not familiar with the empirical research on paid leave, nor do you understand economic theory beyond a very superficial and incomplete level.

I've studied the economics of paid leave fairly closely. I've read all the research and the first thing that needs to be said is that there is little evidence empirically that government-mandated paid or unpaid leave leads to a decrease in employment or wages.

Secondly -- and I can't emphasize this strongly enough -- economic theory does not offer *any* strong predictions about how government-mandated leave would effect employment or wages. If and only if we assume that the labor market is perfectly competitive and that there are no transaction costs, no externalities, and no market failures like imperfect information or adverse selection, then yes, mandated paid leave would have those negative effects, according to neoclassical economic theory.

But we don't live in a world of perfect competition, perfect information, zero transaction costs, etc. For example, employers may assume they know their employees' preferences and therefore they don't offer them more than a week or two of paid leave or vacation, even if that is not actually what employees want (and would be willing to take a pay cut to get). For family leave, in particular -- there is evidence that paid family leave increases women's employment, wages, and productivity (because it helps them maintain good job matches). It also saves the firm money in recruiting and training. And, if it really does do these things, the net result could be, not decreased employment and wages, but maybe even increased employment and wages.

Paid family leave can also create a positive externalities. For example, several studies show that paid family leads improved child health and decreased infant mortality. One particularly interesting (and very good) study showed that while government mandated, job-protected paid leave had a strong and significant positive impact on child health, leave that was unpaid and non-job-protected had no effect whatsoever on child health.

One final point -- a basic problem with the way the economics of labor policy is often studied is that it is assumed that labor markets are perfectly competitive. The perfect competition model may be useful in certain limited contexts, but it's a very flawed and misleading way of looking at the labor market as it actually exists. The basic problem with the competitive model is that it assumes that, if an employer cut wages by one cent, every employee would quit and go work for a different firm. But of course, that's not the way the world works. Imperfect information and significant transaction costs create strong barriers to employee mobility (and employee bargaining).

Influenced by Alan Manning's groundbreaking 2003 book Monopsony in Motion, some economists are beginning to view the labor market not as a perfectly competitive, but as a monopsony. Monopsony literally means "one buyer" (of, in this case, labor). When economists refer to a labor market as a monopsony, they generally don't mean it literally; instead, they use the term to refer the case where the labor supply to a firm is not infinitely elastic (in other words, not everyone will quit if wages are cut by one cent).

Manning and others argue that in situations where there are important frictions in labor markets, and where employers set wages, monopsony is a reasonable assumption. And you'll find, if you do the graphs and the mathematics assuming monopsony rather than perfect competition, the predicted results of various labor policies are different. For instance, the perfectly competitive model will predict that raising the minimum wage inevitably leads to a decrease in employment. But the monopsonistic model shows that employment may actually increase. Although, of course, even in the monopsonistic model, you can raise the minimum wage so high that employment decreases.

Monopsony is a better model for the labor market than is perfect competition, and not only because it's more theoretically compelling (since it incorporates the fact that there are transaction costs to leaving one's job and that employers, not employees, set wages), but also because it's a better fit for the empirical evidence. Research shows, for example, that the impact of the minimum wage on employment is mixed at best, and that it often increases employment. These results are consistent with the monopsony model but very much at odds with the assumption of perfect competition.

And one final note: since theoretically, you would model mandated paid leave similar to the way you'd model a minimum wage (because to the employer, mandated leave would be the same thing as a wage increase), the theoretical results of paid leave would be the same as the theoretical results of the minimum wage. Meaning: if you assume perfect competition (and no transaction costs, etc. etc.), mandated paid leave would definitely result in lower employment (or lower overall compensation). Whereas, if you assume monopsony, there is no strong prediction either way -- employment and wages could increase, decrease, or stay the same, depending on how much it cost the employer.

Posted by Kathy G. | July 24, 2007 4:07 PM

Sullivan wrote:
As to minimum wage: Basically, nobody doubts that the simple model of minimum wage is fundamentally true.
Actually no not at all. If you assume a very simple model with no variables, yeah, that's true. But if you make enough assumptions an ostrich and a penguin are the same animal.

Sure if you raise it high enough it will result in an increase in unemployment. But there is plenty of reason to believe (based on data! yay data!) that moderate increases in the minimum wage have no or a positive effect on employment.

Posted by IMU | July 24, 2007 4:17 PM

Re: The company I currently work for offers 4 weeks of PTO. If you don't use all of it they will pay you for up to 2-weeks.

Interesting! I've never heard of that. We have four weeks vacation where I work too, but you can't carry any of it over into the next year and you get nothing for time not taken. And if you haven't taken (or at least scheduled) a decent amount of it by mid-year both your manager (in person) and HR (by email) starts reminding you to do so.

Re: When it comes to raises, promotions, or layoffs your committment to your job will impact these decisions(in some cases).

That's where I'm dubious, as I've never noticed that anywhere I've worked. I suspect it may be a myth promulgated by mediocre workers who think prefect attendance will get them brownie points since the quality of their work isn't going to get them anywhere (typical American delusion that quantity can make up for quality).

Re: Now the standard deal seems to be 2 weeks PTO.

That seems to be normal, except that you often get more time after five/ten years service. Also, most places I've worked still have a separate category for sick time-- though I've had as much as 10 days a year (with ten days vacation too) and as little as four. We get four weeks vacation where I work now with no precise limit on sick days (except that short term disability-- 60% of pay-- kicks in after five consecutive sick days). Since the vacation policy is fairly generous people here, myself included, seem to take very few sick days, leading me to conclude that about hlf the sick days normally taken at vacation-stingey firms are really "sick of work" days.

Re: And as others say, it looks good to management if you are always working your ass off (or creating the appearance)

I've encountered a rather different attitude in places: "Why can't you get your job done in the course of a normal work day?" Of course that may depend on whether overtime is due or not since companies would rather see the work get done in the standard 40 hours if they are going to end up paying OT otherwise.

Posted by JonF | July 24, 2007 4:21 PM

$150 for Comment Is Free pieces? Sounds like pretty good money to me. E-Z money.

Posted by Aran Lusbridger | July 24, 2007 4:37 PM

If and only if we assume that the labor market is perfectly competitive and that...

This may sound like it's nit picking - it's not, it's actually quite substantial - but there's no "only if" in the above statement. IF the labor mkt is PC and all that then you get standard results. IF the labor mkt is NOT PC and all that then... well, then you could get all kinds of results, some of them being the standard results. That's how relaxing assumptions usually works - less stringent assumptions, more stuff can happen. But that doesn't mean that the original conclusion is automatically ruled out.

But I think we actually agree on this:

Whereas, if you assume monopsony, there is no strong prediction either way -- employment and wages could increase, decrease, or stay the same, depending on how much it cost the employer.

Posted by notsneaky | July 30, 2007 6:15 PM