Leisure or unemployment? It’s a political question

As most workers in the United States get a paid day off from work on September 2 – Labor Day – it is a good time to think about holidays and leisure time in general.

Workers in the US tend to get far too little paid time off. The US stands apart from other countries in this respect: It’s 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 touted as a great economic 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 those of the US, workers can count on almost four weeks of paid holidays or vacation every year.

While most workers in the US 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 federal 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 or 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 nine 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 working in the US put in six percent fewer hours every year, taking this time as vacation, family leave, or just shorter work-weeks. In principle, this would increase the demand for workers by roughly six percent, creating more than eight 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 is also 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 spend a much larger share of their wages than corporations spend from their profits. However, there is no way easy way of forcing companies to pay higher hourly wages.

There is also the 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 percent since 2010. By contrast, in the US real wages have barely moved for more than a decade. The main difference is that workers have no bargaining power in the US 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 US economy since the start of the downturn. Yet remarkably, Germany’s unemployment rate fell by two percentage points since 2007, while the unemployment rate rose by almost three percentage points in the US.

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 workers take part in the benefits of productivity growth in the form of more leisure time.

The average worker in Germany today puts in fewer than 1,400 hours a year, according to the Organisation for Economic Cooperation and Development. By comparison, an average worker in the US works 1,790 hours a year.

If German workers suddenly had to work the same number of hours as workers in the US, and their pay did not change, then employment would fall by 22 percent. Again, this sort of switch would never actually happen, but it is an interesting and thought provoking exercise.

The point is that workers in the US need not be tied to the current length of the work year. Workers in most countries have been enjoying the benefits of more leisure time over the last three decades. There is no reason that workers in the United States should not also be able to do so.

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 US macroeconomist and co-founder of the Centre for Economic and Policy Research.

Follow him on Twitter:  @DeanBaker13