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.
Nice post Reihan. But I don't think Ezra Klein would argue that we should implement paid vacation requirements (or raise the minimum wage) given the state of the economy right now. I think he is arguing for the idea in general. On the other hand, the cost of such a proposal for someone making minimum wage would likely be modest, assuming a minimum of 2 weeks vacation a year. Basically, given inadequate aggregate demand and nearly complete political dysfunction, we are going to have severe unemployment for a while, whether or not we have a paid vacation law. My point is that when it comes to unemployment, this is more of a sideshow and would be unlikely to have a big effect one way or another.
And besides, what if we adjusted the minimum wage downward so that the compensation of minimum wage workers was exactly the same, after taking into consideration any requirements for paid vacation? Then it should have very little effect on unemployment (although there would likely be some minor costs associated with allowing employees to have any vacation at all). The reason that paid vacation requirements sound like a bad idea to you right now is basically because it is equivalent to a proposal to raise the minimum wage; but it is possible to actually decrease the minimum wage at the same time that such a law is passed.
One point I would like to add is that the amount of vacation we take is also cultural. You talk as though it were a pure matter of individual preferences and negotiations between employee and employer. But, as you also mention, there are network effects here (when your friends and family have vacation time also, it makes vacation time more valuable... vacation alone is not nearly as enjoyable as vacation with people you want to spend time with) and there is also a culture regarding how much vacation time we take.
Overall, I think the idea of a paid vacation law (perhaps combined with a decrease in the minimum wage) would be a good one.
On a side note, I think your idea about wage subsidies is intriguing and interesting. That may be one way to make up for the dislocation effects of free trade... which have negatively affected some manufacturing workers for example, while ensuring we still enjoy the efficiency benefits that free trade allows but which tend to flow disproportionately to the affluent. (Yeah, shopping at Wal-Mart is great for low income workers; but it doesn't make up for losing a decent paying job due to competition from abroad.)
Unfortunately, whatever the merits of the idea, I strongly suspect that the idea of wage subsidies would be viewed by most Republicans as being "socialist" or a form of welfare. There is a lot of unfortunately rhetoric out there that kills perfectly reasonable ideas.
I think wage subsidies sound like a decent idea, but it should be kept in mind that such subsidies would change the incentives of individuals somewhat in terms of acquiring new skills and getting better paid jobs, at least if the subsidy is phased out as income increases. It sounds to me as though any subsidy probably should not be phased out (or be phased out only very slowly) as one's income grows to avoid creating such disincentives.
Also, if wage subsidies are a good idea, there would be no contradiction between requiring paid vacation and providing wage subsidies. (Obviously, the amount of the wage subsidy would need to be adjusted to take into consideration the cost to employers of providing paid vacation if we did not want the unemployment rate to go up -- or we could just lower the minimum wage...) So, I am not sure that your point about the desirability of wage subsidies is an argument against a paid vacation law.
One might ask another simple question. Why should vacation be paid rather than unpaid? Imagine a situation where an employee was required to take 2 weeks of unpaid vacation every year. Shouldn't an employee be indifferent to whether the vacation is paid or unpaid, assuming the same total compensation? I think the answer is no; paid vacation is better, because of budgeting issues. The reality is that a lot of Americans are just not as disciplined about saving as they should be. (Actually, the issue is as much a matter of planning as discipline, but that is another conversation.) Paid vacation is a way to ensure that lower income individuals (and individuals with other incomes) are actually financially able to take their vacation time.
Reply to this commentLinkReport AbuseI must respectfully suggest that you are wildly disconnected from the realities of the American workplace if you think that negotiating time off, paid or otherwise, is a reasonable option for any significant number of workers.
I'm a senior software engineer in Silicon Valley--surely one of the most privileged gigs in the world for my age and experience level--and I've had companies offer me an extra $10,000/year rather than give me a week of paid vacation, or rather than give me 3 weeks of *unpaid leave*. (Note that I do not make $10,000 in a week.)
To a company, accumulated paid leave is a cash liability waiting to happen (since they have to pay it out if the employee terminates), unpaid leave is just weird, and both mean having to work around the employee's absence, whether by delaying projects where they're not replaceable, or by overloading the remaining workers (including the possibility of hourly overtime).
No, I think you need some research showing the negotiations you claim are possible for more than a handful of cases--maybe a survey of employers or employees?
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