No Such Thing As a Paid Vacation

Last week I was talking to one of the sharpest knives in the progressive economic policy drawer and he made what struck me as an odd claim about what he claimed as an important divide in progressive thinking. Some people (including the two of us) think that public policy can affect workers' total level of compensation by affecting overall labor market conditions. We don't, however, think that mandating the provision of certain kinds of benefits can increase total compensation. I didn't believe him at the time, but it seemed to me to be part of what was going on during the vacation debate in the comments section of the blog.

In particular, in my view a lot of people are being misled by the concept of a "paid vacation." A paid vacation is a kind of accounting fiction -- you continue to draw a paycheck (and health care benefits, etc.) even while you're on vacation. But nobody's going to pay you to go on vacation. You're paid for the work that you actually do. The money you get on your vacation days is part of your payment for the work you do on the other days. Over the long run, if the government mandates a certain number of paid vacation days, then positions that currently offer fewer vacation days then that will become less lucrative.

In the real world, wages tend to be sticky, so a government mandate of more vacation probably wouldn't lead to immediate pay cuts, but a government mandate of more vacation probably wouldn't involve immediate implementation anyway. The point, though, is that while we definitely could use public policy to shift the money/leisure mix the American workforce receives, we can't just conjure up free money through a regulatory mandate -- if everyone is made to work less, then everyone will earn less money. That's perhaps a defensible trade off (the French certainly seem to think so) but there's a real price to be paid.