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Home Publications Blogs Beat the Press Robert Samuelson Gets Vacation Story Mostly Right

Robert Samuelson Gets Vacation Story Mostly Right

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Monday, 08 July 2013 09:17

I should be happy. Robert Samuelson has a good column that centers on the "No Vacation Nation Revisited" report that CEPR published a couple of months ago. 

Samuelson picks up the report's main points. There has been a huge divergence in work hours between the United States and other wealthy countries over the last three decades. In other wealthy countries all workers are guaranteed 4 or more weeks a year of paid vacation. In the United States there are no legal guarantees of paid vacation or leave. Better paid workers typically have paid vacation and holidays, but part-time and lower paid workers often have no paid leave. The result is that Americans work on average about 20 percent more hours a year than do workers in several other wealthy countries.

It was very nice to see Samuelson pick up on these points. But then he concluded:

"We could follow other advanced societies and legislate minimum vacations. This is a debate worth having — sometime in the future but not now. We need to remember the obvious: Paid leaves mean compensating people for doing nothing. There are consequences. The most likely are less hiring (because higher labor costs deter employers from adding workers) or eroding wages (because employers offset the extra costs by squeezing wages). It’s doubtful that mandated vacations would create many, if any, extra jobs. Europe has longer vacations — and higher unemployment. One is not the solution for the other."

Samuelson is exactly right that there is trade-off in the sense that we can't think that paid time off doesn't come largely at the expense of lower wages. However, it does not follow that now is a bad time to be debating such policies.

If we remember the economy's basic problem right now is a lack of demand, then this would be an excellent time to consider such policies. This is exactly the time when reduced hours actually are likely to translate fairly directly into more employment. It is when the economy is fully employed that reduced hours are likely to create issues with inflation.

And the idea of raising employer costs should hardly be a major matter of concern when profit margins are at record levels. We absolutely want to raise employer costs -- shifting income from corporate profits to wage earners. We can debate how much impact paid leave would have in increasing workers' compensation, but insofar as it does, that's a positive and not a negative.

The comparison of unemployment rates with Europe is silly. The United States actually did not have a lower unemployment rate going into the downturn. And it certainly does not have a lower unemployment rate now than several of the slackard countries like Germany and Austria, which have unemployment rates of 5.3 percent 4.7 percent, respectively.

The main reason that Europe as a whole has a higher unemployment rate than the United States is because the prices in the peripheral European countries are hugely out of line with prices in the core countries. As long as these countries stay in the euro, this price gap can only be corrected by higher inflation in the core countries or massive unemployment squeezing down wages in the peripheral countries. The European Central Bank (ECB) has opted for the latter route.

It is ridiculous to blame the high unemployment caused by the ECB on Europe's policies on paid leave. It is especially odd that Samuelson would attempt to do so since he has written on exactly this topic.

So great to see Samuelson picking up a CEPR paper and a very important issue, but his take on implications could use a bit more work when he's back from vacation.

Comments (3)Add Comment
You Heard It Here First: Reducing Unemployment with Upward Sloping Demand Curves for Labor
written by Last Mover, July 08, 2013 1:12
And the idea of raising employer costs should hardly be a major matter of concern when profit margins are at record levels. We absolutely want to raise employer costs -- shifting income from corporate profits to wage earners. We can debate how much impact paid leave would have in increasing workers' compensation, but insofar as it does, that's a positive and not a negative.


Dean Baker is over the top with this one. Let's just convert the downward sloping demand curve for labor to an upward sloping demand curve so the more expensive labor is, the more of it is hired, shall we? How else are we going to cut into those excess profits?

This seemingly conflicts with Samuelson's notion that:
We need to remember the obvious: Paid leaves mean compensating people for doing nothing. There are consequences.


But wait. So an increase in real wages through a benefit of working less hours means compensating workers for doing nothing? What world does Samuelson live in? Some kind of piecework output of widgets where an increase in overall real pay per widget means they are paid for doing nothing for the pay increment in question since more widgets are not (necessarily) produced?

Taking foot-in-mouth Samuelson literally would mean he agrees with Baker that the demand curve for labor must slope upward - the higher the real wage, the more labor effectively employed or hired since no value is added at the margin.

At last, agreement between two long time foes on how to improve the unemployment problem. One right for the wrong reason by accident as usual, the other right for right reason on purpose as usual.
How Much More?
written by James, July 08, 2013 3:00
Former great Sen. Ted kennedy famously asked how much more the other side want from the working class? You said profit margins are at record levels and also productivity has gained so much in recent decades.

And yet, have workers benefited in a fair share from their contributions? How about wages? How about health insurance? Defined benefits turned into contribution.

How many here's effective income tax rate is less than 12.6%?



...
written by AJ, July 08, 2013 3:57
"Paid leaves mean compensating people for doing nothing." This is just not accurate. Paid leave is much more like a mandatory vacation and mandatory reduction in salary than being paid "for doing nothing." Obviously, if a company needs a certain amount of work done and it gets a worker for 11 months out of the year (rather than 12), it's going to need to adjust its hiring and compensation practices. Over time, paid leave of four weeks should approximately result in salaries at 11/12 the figure they would have been without the mandatory vacation (for companies that would otherwise have offered no leave).

I can't believe we still debate stuff as obvious as this.

[Just to be clear, I'm for mandatory vacations. I'd rather the labor market compete on salary rather than how much a worker will sacrifice of his/her non-work life (e.g., workers willing to sacrifice all non-work life shouldn't benefit when you get down the last margin of whether you will work all 52 weeks other than just 50 or 48).]

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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