The Price of Paid Vacation

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With Ezra Klein reviving his campaign for mandatory paid vacation in the United States let me revive my counterpoint to this idea:

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.

It’s always hard to know what will happen in the short-term because of nominal stickiness and the vagaries of labor market conditions on any given day, but one relevant point that should be familiar from the health care debate is that over the long run the total share of GDP going to labor force compensation is roughly constant at around 56 percent of GDP. As employers’ perceived obligation to provide private group health insurance coverage to most of their employees has become more costly, this has been offset by a reduction in money wages. If you make employers give people more time off, that will be made-up somewhere else in the system. Simply mandating a certain mix of vacation time (or any other kind of benefit) doesn’t change bargaining power available to low-productivity workers.

That said, I can envision two kinds of arguments for mandatory paid vacation. One is that it would arguably be a way of forcing workers without families to subsidize workers with families, which might be a good idea since parenting is hard work that creates real value for our enduring human community. The other is that perhaps employers would be able to make up the lost output from paid vacation by getting people to waste less time while on the clock. Both blog traffic statistics and common sense indicate that people do a lot of stuff that’s not work while “working,” and it would arguably be better to try to push everyone to work more efficiently and take more vacation rather than spending a lot of time on pseudo-work.

Still, I’m skeptical that this sort of intervention is the best thing to spend time pushing for. This kind of issue is, however, perennially misunderstood by voters so I’m surprised that American politicians don’t more frequently propose it.