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Vacation as a Job Creator

Wednesday, 25 June 2014 09:33

Basic economic logic predicts that an increase in the productivity of American workers should lead to some reduction in work time, the logic being that workers would take some of the benefits of higher income in the form of more leisure. Despite substantial productivity growth over the last four decades, time-use studies show the opposite trend, average hours worked in a year have actually risen somewhat over this period. It is worth noting that the United States is very much an outlier in this respect. Average hours worked have declined sharply in other wealthy countries over this period, with workers in countries like the Netherlands and Germany now putting in 20 percent fewer hours than workers in the United States.

There is a simple microeconomic explanation for this rise in hours in the United States. The overhead costs associated with hiring another worker, most importantly health care benefits, can encourage firms to increase hours rather than add workers. Health care is far more expensive in the United States than in other countries, and it is typically provided as a per worker cost. This fact could go far toward explaining why hours worked and leisure time have followed a different course here than in other countries.

Vacation as a Job Creator

Unsurprisingly, problems that affect many individuals in a society have macro implications. Figure 1 plots the relationship between hours worked and the employment rate for 18 OECD countries between 2003-2007. I selected years of relative economic calm to try to understand the relationship between the variables because macroeconomic stability encourages more regular behavior among firms. The clear negative trend suggests that the culture of overwork has negative implications beyond employees and the firms who hire them.

Importantly, two dimensional graphs and lines of best fit have significant statistical limitations. Still, in a regression controlling for individual country effects, time, inflation, GDP, and GDP growth, the estimate of the coefficient on annual hours worked is statistically significant at 1 percent level. While this result is not robust into the Great Recession, it is suggestive at the very least.

If fewer hours per worker are associated with more employment, then it would provide another important argument for policies like mandatory paid sick days, family leave, and vacation. Not only would these policies help to facilitate work-family balance, they also would divide the work we have more evenly, thereby reducing unemployment. In a context where we are likely going to see a severely underemployed workforce for years into the future, this may be one of the best ways available to address unemployment.

Tags: employment | GDP | job creation | vacations

Comments (3)Add Comment
But, but, but... profit?
written by Usha A, June 25, 2014 10:53
Increase in productivity resulted from reduction in work force and increasing hours worked of remaining workers. The driver for this was to increase short term profitability (and stock price... etc.). So it is quite obvious that changes are needed at policy level, which is highly unlikely with our current system of 'government'.

Welcome to the new paradigm!
Lump of Labour fallacy.
written by Ralph Musgrave, June 26, 2014 2:24

Nice article, except for the last para. This claim is nonsense: “Not only would these policies help to facilitate work-family balance, they also would divide the work we have more evenly, thereby reducing unemployment.”

The idea that there is a GIVEN OR FIXED amount of work which can be “divided more evenly” is the old lump of labour fallacy. Unemployment cannot, repeat cannot, be reduced by shortening working hours, longer holidays, early retirement etc etc. This dreary list goes on and on. It’s an idea that’s as old as the stars and it’s nonsense.

I’m all for shorter hours IF THAT’S WHAT PEOPLE WANT, but it won’t reduce unemployment.

That lumpy labor fallacy
written by Dean, June 26, 2014 11:50
Let's see now, all right thinking people are supposed to believe that if company employing 1000 people cuts back their hours by 20 percent instead of laying 200 workers off, that another 200 workers elsewhere in the economy will either be laid off or not hired?

Hmmm, let's get out the Twilight Zone music. Anyhow who can prove that one should have a Nobel prize coming their way.

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