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.