Further Thoughts on Vacation

by Reihan Salam

Ezra Klein writes, in re: my earlier post on paid vacation:

There are a couple of things wrong with this paragraph. For one thing, the top 80 percent or 90 percent of households — the ones that Salam identifies as making us richer — are the same households that actually do get paid vacation. As this CEPR report makes clear, you’re more likely to get paid vacation days if you’re a high-wage worker, if you work for a large firm and if you’re full time rather than part time. And the richer you are, the more days of paid vacation you’re likely to get.

I worry about the lack of conceptual precision. More affluent U.S. households do indeed get paid vacation. But do they get as much paid vacation as the European counterparts? They don’t. And that suggests that despite their bargaining power, they are choosing a different mix of work vs. vacation, influenced by the fact that U.S. workers enjoy more non-vacation leisure time. As Peter Baldwin of UCLA observed, Americans seem to consume leisure in different ways. The fact that we have less paid vacation masks the fact that Americans consume more leisure at home and during the workday. So could it be that we’ve settled on a different equilibrium that works reasonably well? I’d suggest that the answer is yes.

To be sure, a paid vacation law would shift norms and preferences towards longer vacations. I acknowledged the importance of network effects, and we’ve often discussed increasing returns to scale in leisure and leisure inequality. I absolutely believe that more paid vacation would, as I suggested, be good news for the hospitality industry. 

But I’d also suggest that unpaid vacation is a valuable perk, and that unpaid vacation when combined with a higher cash wage doesn’t sound too bad. 

Ezra continues:

Which goes to the reality of the situation, which is not that workers and employers “flexibly choose an arrangement that works for them.” Employer-employee relations are rarely so idyllic. Broadly speaking, employees with the power to demand more paid vacation do so, and employees without the power to demand more paid vacation get less — or in some cases, no — paid vacation. A law guaranteeing paid vacation would primarily tilt the playing field toward low-income workers, rather than against them, as is the case now.

This, of course, is closely related to the case for mandating higher compensation for workers. When we mandate various non-cash benefits, like medical insurance or paid vacation, we raise the cost of hiring new employees. One can make a case for collective provision of medical insurance or paid vacation on these grounds. Yet it’s not obvious to me that we shouldn’t leave it to workers to save some portion of their cash wages to spend on leisure.

So it seems that Ezra’s core point is that low-wage workers deserve more paid vacation. That is an important if narrower question.

I certainly don’t mean to suggest that all workers have the bargaining power they need to secure all of the paid vacation they’d like. It is certainly true that a law guaranteeing paid vacation would tilt the playing field toward low-income workers who want paid vacation. I can’t see how it would be otherwise. But might it be wiser to focus on raising the take-home pay of low-income workers by, for example, creating wage subsidies? That’s a measure that wouldn’t raise the effective cost of hiring workers, something we ought to avoid in light of the grim employment landscape.