Learn some economics, be entertained… (part II)

Matthew Yglesias tries to make an economic argument against mandated paid time off. The comments are pretty fun in a “they expose the economic ignorance of a seemingly bright population of readers” sort of way.

Employers get so much value from their employees. In a competitive market, the employer will pay the employee that value. Now, by “pay” I mean give money in the form of paychecks, but also the employer gives other benefits like health insurance, retirement plans, a nice work environment and paid vacations. They won’t “pay” any more than the employee is worth. If the government makes the employer give more paid vacation, he or she will just decrease the amount he or she pays them in some other way maybe by decreasing the employee’s paycheck or by turning down the air conditioner. Its basic accounting really.

To refute this argument, you have to show employers systematically underpay their employees what they’re really worth. You’d have to argue that for some reason the labor market is uncompetitive. Last time I looked on Monster.com, there seemed to be lots of potential buyers of my labor. I’d think there’s lots of buyers for low skill jobs, too. If the McDonald’s employee doesn’t like how much he’s being paid, he can walk across the street to Burger King.

Or you could make the silly argument that employers will end up paying employees more than they’re worth to the company. I think its pretty well established that people, especially evil business types, don’t like to give away money, but I’d like to see someone give this argument a try.

Oh and why is it that people think arguing against government mandated vacation time is the same thing as arguing against vacations? I love vacations, they’re great. I’m also against mandated PTO.

7 thoughts on “Learn some economics, be entertained… (part II)”

  1. “They won’t “pay” any more than the employee is worth.”

    [ins]Tend to.[/ins] They won’t tend to, in the long run. In the short run, an employee with negative value (compensation > productivity) can “hide” in a larger company. Remember that a human has to judge your apparent productivity and take a course of action against you, and humans are fallible. I suspect that most companies over a few dozen people have their share of slackers.

    In principle, though, yeah, employers aren’t charities. Unless they are. And even then, they’re not.

    There is the insidious idea that a well-rested employee is more productive than a stressed employee. If we were all working in factories stamping out munitions for the war effort, our productivity would be easier to measure.

    I think it’s seductively easy and misleading to judge a white collar worker’s productivity by the amount of time they spend at the office. Say I spend a Saturday fixing mistakes I made on a Friday due to fatigue. Your average mid-level manager will probably say “Woot, I got a free day of work out of this guy!” instead of “Hey, this jackass is running up my power bill…”

    That said, it’s a decision that should be posed to the companies themselves as part of a competitive labor market. A 10-employee biotech startup has very different labor needs than a private hospital.

    As an aside: how come France and Germany haven’t collapsed into clusters of third world shantytowns? Between their universal healthcare and government mandated PTO, shouldn’t they be on the verge of economic collapse? I’m sure we’ll be seeing those “You can feed a Bavarian boy for just 10 cents a day!” commercials any time now.

  2. I agree with everything you have to say about vacation. I especially agree with your ideas about productivity… It used to drive me crazy that my old job would make us track our hours and interrogate us if we didn’t have 40 hours billed. I could do 10 hours of work in 15 minutes and sit and think for the rest of the time.

    Anyway, the argument, as I think you can see, is against mandated vacation (i.e. the government pointing guns to people’s heads and requiring them to provide vacation time).

    Large welfare states decrease growth not necessarily incomes. This is because they depress the incentives for innovation. Europe’s incomes have been growing slower than the U.S.’s for example and we see pretty large divergence in income per capita. France and Germany (and the UK and Italy and Spain) have much lower GDP per capita than us (even if you look at median incomes). And the difference is growing.

    The counter-argument (large welfare states don’t hurt economic growth) is given by Prof. Lindert in his book Growing Public. And you can always find data to show me wrong… i.e. per hour data puts France above the U.S. and I have no idea what this is, but its originator claims it shows the EU growing faster than the U.S.

    Notice the Nordic countries are a brilliant exception — or the rule, depending on your perspective.

  3. I think there are substantial cultural differences here between parts of the EU and the US. Hard work is highly, highly valued in American culture. I submit that hard work is valued above smart, efficient, or effective work in this country, though I can’t whip out any handy data points to back this up at the moment.

    I have clients and contacts who work 6 to 7 days a week, from early in the morning to well into the evening most nights. Web and mail-capable cell phones seem really similar to crack pipes for these folks. Nothing like getting two messages when you step in to work – one from 8PM asking you to cover something, and another one from 6AM asking why the hell it isn’t done yet.

    I think that white collar American workers eschew vacation because they’re afraid of appearing lazy. If appearing to be a hard worker is the basis for being judged valuable, there’s a strong incentive to put in extra time, even if it’s mostly filler. Force them to take time off, and they’ll probably be glued to their phones and laptops from home, desperate to prove that they’re really needed to keep things running at the office.

  4. Yeah, culture’s probably it.

    Culture is hard to model, and thus hard to talk about in non-squishy ways, so economists let anthropologists take over with those sorts of arguments.

  5. BTW, I find my last comment to be total loser of an argument, but its the one I’ve heard over and over again by my professors.

    Its sort of like saying ether is hard to model and thus giving up on trying to understand atomic theory.

  6. Maybe quantum mechanics is a better comparison. Americans cleverly infer the existence of their vacations instead of experiencing them firsthand.

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