-
Website
http://willwilkinson.net/flybottle -
Original page
http://www.willwilkinson.net/flybottle/2007/07/19/the-paid-vacation-laffer-curve/ -
Subscribe
All Comments -
Community
-
-
Top Commenters
-
Popular Threads
An government-ordered increase in paid vacation time is a reduction in the supply of labor. When the supply of something goes down, its price generally goes up. Matt doesn't understand this. He thinks that the price of an hour of labor is fixed (by God, perhaps), so if a firm buys fewer hours, it will necessarily pay less than it would for more hours. That's not correct.
Suppose the government requires three weeks of paid vacation for all employees of firms with over 100 employees. Employers can deal with the situation by one or more of the following, not all of them practical for all jobs: (1) have other workers take up the slack; (2) ask non-vacationing employees to work overtime; (3) hire new employees and redistribute the work over the course of the year; (4) hire temps (like college students) in vacation season.
Nos. (2), (3), and (4) will increase total employee costs to the employer. Matt believes that the source of funds for these increased costs can come from only one place: the wages of the vacationing employees. That is not true. The funds can come from five places: reduced wages; reduced return on capital; lower remuneration for top management; other cost-cutting within the firm; higher prices charged by the firm for its goods and services.
How these factors would play out in actuality would be different in different sectors of the economy, and different for different types of workers. Workers with skills in demand would likely see little or no wage reduction, and might even see a wage increase. Unskilled workers in sectors with high unemployment might see a wage decrease.
But what would definitely not happen, in any sector, would be a dollar-for-dollar reduction in compensation for employees who benefited from the additional vacation. Matt thinks that there would be. He's wrong.
PS- 150 years ago employers claimed that the 10-hour day would put them out of business, and apologists for them made the same argument that you are making now: since employers demanded 16 hour days, 16 hour days must be the most economically efficient work day. After all, employers wanted to make the most money possible. That's your argument, too, and who knows, maybe it's true. Maybe we should go back to the days of no wages and hours legislation. As for me, though, I don't believe that maximizing profits in the short term is always the best thing for society. I think a society has a need to protect its future. As the single wage-earner family disappears, it is crucial that we have ways of living that permit two-earner families and single-wage earner families to raise their children. We're not talking about three weeks on the beach here. We're talking a few school visits, a couple of sick kid days, a funeral, a 4-day Thanksgiving break to visit grandma, and a two-week summer vacation. Firms, of course, care only about short term profit maximization - that's what they are supposed to care about. The government is supposed to make sure that families get the resources they need to raise the next generation. Enough time off from work to pay attention to the kids is one of those necessary resources, and we're not getting it.
This is so boneheaded.
A decrease in the labor supply would be a reduction in workers, not a change in how they are compensated. Which is why, all things remaining the same - after all the number of workers has not changed!- wages will drop. Sorry, no free ponies.