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July 23, 2007

More, More, More on Leave!

Speaking of paid leave, last week, LizardBreath suggested that "if workers, on average, think that two weeks of leisure increases their utility by more than employers think it costs them, but transaction costs (cultural factors, whatever) keep them from bargaining for that outcome, then mandating that a part of every worker's compensation consist of paid vacation is going to make everyone better off -- it will literally increase compensation to workers in terms of utility, without injuring employers."

On that subject, commenter Kathy G. sent me a paper on "Compensation Inequality" from the Quarterly Journal of Economics which suggests something along those lines may be happening. It appears that compensation benefits rise much faster for professionals than does income. The chart's a bit long, so I'm putting it below the fold. The takeaway, basically, is that in most professions, professionals appear to have bargained for significantly more leave relative to other workers than income. There are a variety of ways to explain this, but it's a provocative finding, and one that suggests leave may be quite a bit more valuable than we realize, given how insistent those workers with actual bargaining power are on obtaining it.

Wages To Leave

July 23, 2007 in Government | Permalink

Comments

just a quick note to add a bit of pessimism.

it's not entirely clear that professionals are bargaining for *more* leave in absolute terms - the incidence and cost of leave for big parts of the workforce falls under the period in question. the professionals are probably just doing a better job preserving a relatively constant level (the paper doesn't give absolutes on professionals vs others, but, the other data in the paper, like the fact that you have to get to the 90th percentile and above to see outright increases in nonwage compensation over the time-period, pretty strongly suggests this).

i think the larger point stands (richer people do indeed start consuming more leisure - even tho it's more expensive for them to do so), but, the fast increase in relatives for professionals masks what is surely a pretty depressing story in absolutes for the non-professionals.

Posted by: josh bivens | Jul 23, 2007 12:57:42 PM

Um, couldn't it just be that people with higher incomes are more likely to be at a point on the income utility curve where they value more free time more than they value more stuff? And as the relative rewards of being a highly skilled professional increase, this spread increases as well?

Or the fact that professionals work longer hours, and thus place a much higher value on time spent entirely away from the job because they don't get as much chance to re-charge in the evenings and on the weekends?

On a related note, even if mandating more leave will make the average worker better off on a utility basis, it will almost certainly make some workers better off and some worse off (that's how the world works after all). But the workers made better off find the current situation sub-optimal because they don;t have enough leisure time, while the workers made worse off by mandating more vacation time will find that situation sub-optimal because they won;t have enough money. Shouldn;t our sympathies be with the latter group (nobody ever had to go hungry because they didn;t get enough vacation time).

Posted by: sd | Jul 23, 2007 1:04:05 PM

Or, err, low income workers value the income more than the leisure?

Posted by: Tim Worstall | Jul 23, 2007 1:16:16 PM

Right -- I agree that low-income workers value income quite highly. The point of this is that leisure obviously is a highly-valued good as well, and it may well be worth thinking about guaranteeing it to folks up and down the income ladder.

Posted by: Ezra | Jul 23, 2007 1:31:13 PM

Don't miss, in any analysis, that marginal taxes probably matter. Someone earning around $90,000 faces about a 50% marginal tax rate. (Rough guess--15% FICA and 35% income)--so the cost of leisure is lower than it appears.

Posted by: SamChevre | Jul 23, 2007 1:43:36 PM

Speaking of paid leave, last week, LizardBreath suggested that "if workers, on average, think that two weeks of leisure increases their utility by more than employers think it costs them, but transaction costs (cultural factors, whatever) keep them from bargaining for that outcome, then mandating that a part of every worker's compensation consist of paid vacation is going to make everyone better off -- it will literally increase compensation to workers in terms of utility, without injuring employers."

Isn't it interesting how the magic words "Pareto efficiency" only seem to be invoked for measures which shift resources from labour to capital...

Posted by: Phoenician in a time of Romans | Jul 23, 2007 4:40:54 PM

.... remember that backward bending labor supply curve?

Posted by: mk | Jul 23, 2007 6:46:10 PM

"The point of this is that leisure obviously is a highly-valued good as well,"

As is income, clearly. Ezra, you're saying that both leisure and income are valued. OK. You're then saying that the rich choose more leisure than the poor do. OK.
Then, that the poor should be forced to have more leisure rather than the income they, through their actions, prefer. It's that last bit that sticks in the craw a little. Why shouldn't people be allowed to choose the leisure/income mix that they themselves desire (within the contraints that they face, of course).

Posted by: Tim Worstall | Jul 24, 2007 8:43:42 AM

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