New York City Moves Forward With Paid Vacation Measure

New York City Moves Forward With Paid Vacation Measure

This week New York’s city council will begin to consider a measure put forward by Mayor Bill de Blasio that would guarantee workers in the city at least 10 days of paid time off per year. This proposal is an important step toward bringing the United States inline with the other rich countries in guaranteeing its workers some amount of paid vacation.

As a new report from Adewale Maye at the Center for Economic Research shows, the United States is very much an outlier from its peer countries in not guaranteeing its workers any paid vacation days or holidays. Countries in the European Union all guarantee workers at least four weeks of paid vacation (it’s a condition of EU membership). Many provide five weeks, in addition to an average of 10 paid holidays.

Canada guarantees workers 10 days of paid vacation in addition to nine paid holidays. Even Japan, which has a reputation as being a workaholic country, guarantees workers 10 paid vacation days and 15 paid holidays. The 10 days of paid time off proposed by de Blasio would still be at the bottom of the list among wealthy countries, but it would at least be a step in the right direction.

In the US, it is those at the bottom who are least likely to get paid vacation or holidays on the job. More than 90 percent of workers in the top quartile of the wage distribution get both paid vacation and paid holidays. Just over 50 percent of workers in the bottom quartile get these benefits.

The United States was not always an outlier in the amount of time people worked in the course of a year. If we go back to 1970, the average number of hours people worked in a year in the United States was pretty much typical for wealthy countries. The average worker put in somewhat more time than people in Denmark and the Netherlands, but less than people in France, Finland, and much less than workers in Japan.

However, over the next five decades, the average length of the work year fell sharply in all of these countries, while just edging down by 5.0 percent in the United States. As a result, workers in the United States now put in more time than workers in any other wealthy country, including Japan.

There is a reason that employers were reluctant to agree to more vacation or shorter work years in general. In the United States, health care insurance and pension benefits have been provided primarily by the employer. These are substantial expenses that are viewed by employers as largely per-worker overhead costs. This gave employers a strong incentive to require workers to put in more hours each year rather than allowing for shorter hours and hiring more workers.

This incentive structure has changed somewhat now that traditional defined benefit pensions are increasingly rare. It is also now common for employers to prorate the portion of a health insurance benefit that they pay.

Nonetheless, the historical impact of this structure cannot be reversed overnight. This is one reason it is good policy for governments to take active measures like de Blasio’s proposal for mandated personal time. For decades we had in place a benefit structure that provided an incentive for employers to favor longer hours, it is reasonable that government takes steps in to try to reverse an important unintended effect of its policy on pension and health care insurance.

Ideally, this will get the United States back on its previous path, where workers shared in the gains from higher productivity growth by receiving more leisure and shorter work years. Of course, the big problem of the last four decades is that most workers have not gotten their share of productivity growth at all. The low unemployment of the last four years has given workers the bargaining power to see real wage gains. If this continues, they will hopefully also secure more leisure.

The reduction in work time is also relevant to trend that has become important for pundits, even if it doesn’t exist in the data. There is a widespread fear among pundits that robots will replace workers, leaving everyone jobless. In Germany, the Netherlands and other European countries, workers already put in 20 percent fewer hours each year than in the United States. Reduce our work years to European levels and we will instantly create 20 percent more jobs. Repeat as necessary.

Yes, in the real world it is more complicated, but an obvious way to deal with increased productivity is to shorten work hours. This may be too simple for our great minds, but if we can do it in practice, they may eventually figure it out. Mayor de Blasio’s proposal for mandated vacation days is a great first step.