Leisure or Unemployment: It's a Political Question
As most workers in the United States get a paid day off from work this Labor Day, it is a good time to think about holidays and leisure time in general. Workers in the United States tend to get much too little in the way of paid time off.
We stand apart from other countries in this respect. The United States is the only wealthy country in the world where workers are not guaranteed some amount of paid leave.
In most European countries workers have at least five weeks each year of paid holidays or vacation. In Germany, which is being touted as a great success story, workers have a legal right to almost seven weeks a year of paid time off. Even in Canada, which has a culture and economy very similar to United States, workers can count on almost four weeks of paid holidays or vacation every year.
While most workers in the United States do get some paid time off, few get anywhere near as much as their counterparts in other countries. And a substantial number get nothing at all. Twenty-three percent of all workers report getting neither paid vacation nor paid days off on holidays.
Paid time off is important for people to be able to spend time with their families, to get some rest, or just to enjoy life. But it also can have an important economic benefit in a context where the economy is well below its full employment level of output.
People look to the high rate of unemployment and the large number of people who would like full-time jobs but can only get part-time work and think that times are tough; that this is a period of scarcity. In fact the story is just the opposite.
Most people are being fed, housed, and clothed even though employment is down by almost 9 million workers from its trend level. This is an indication of our wealth. We can meet these needs even while so many people are not working.
Imagine if the 140 million people who are working put in 6 percent fewer hours every year, taking this time as vacation, family leave, or just shorter workweeks. In principle, this would increase the demand for workers by roughly 6 percent, creating more than 8 million new jobs. This would absorb most of the country’s unemployed.
Of course in the real world we could not just snap our fingers and shorten everyone’s work-time and fill the gap with unemployed workers. Many workers would be difficult to replace since the unemployed may not have the necessary skills. It also is difficult for firms to rearrange schedules.
There also is the essential question of whether workers would get the same pay, even as they work fewer hours. That might be desirable from the standpoint of helping workers and sustaining demand in the economy, since workers will spend a much larger share of their wages than corporations will spend from their profits. However, there is no way easy way of forcing companies to pay higher hourly wages in this story.
There is an issue of market power forcing up wages. In Germany, where the unemployment rate is just 5.4 percent, the average hourly wage, adjusted for inflation, has risen by more than 4.0 percent since 2010. By contrast, in the United States real wages have barely moved for more than a decade. The main difference is that workers have no bargaining power in the United States because of high unemployment.
Many people look to Germany’s low unemployment and attribute it to a booming economy. In fact Germany’s economy has grown no more rapidly than the U.S. economy since the start of the downturn. Remarkably, Germany’s unemployment rate fell by 2 percentage points since 2007, while the unemployment rate rose by almost 3 percentage points in the United States.
The reason for this difference is that Germany has an institutional structure that encourages employers to keep workers on the job but working fewer hours rather than laying them off. This is a good short-term policy to deal with a temporary shortfall in demand. It is also a good long-term policy since it has workers taking part of the benefits of productivity growth in the form of more leisure time.
The average worker in Germany today puts in less than 1,400 hours a year according to the Organization for Economic Cooperation and Development. By comparison, an average worker in the United States works 1,790 hours a year.
If German workers suddenly had to work the same number of hours as workers in the United States, and their pay did not change, then employment would fall by 22 percent. Again, this sort of switch would never actually happen in the world, but it is an interesting thought exercise.
The point is that workers in the United States need not be tied to the current length of the work year. Workers in every country have been enjoying the benefits of more leisure time over the last 3 decades. There is no reason that workers in the United States should not be able to do so also.
Such a reduction in hours will not only have direct benefits for workers enjoying more time off, it will also help to reduce unemployment and increase workers’ bargaining power. This will make it more likely that they will be able to share in the benefits of productivity growth in the future. That’s certainly a much better picture than high and rising unemployment.
Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.