Sunday, August 12, 2012

Vacations don't pay for themselves

I've heard that Robert Reich is a smart guy, and he probably is in some dimensions, being a Rhodes Scholar and all. Economics just isn't an area where he has any real expertise.

Unfortunately, economics is the subject Reich keeps commenting on and his latest idea is particularly comical. Much like the bastardized, straw-man version of the Laffer Curve states all tax cuts will increase tax revenue, Reich said giving all workers paid time off will increase profits:

A mandatory three weeks off would be good for everyone — including employers. 
Studies show workers who take time off are more productive after their batteries are recharged. They have higher morale, and are less likely to mentally check out on the job. 
This means more output per worker — enough to compensate employers for the cost of hiring additional workers to cover for everyone’s three weeks’ vacation time.

This was not a parody. This is a real suggestion from the nation's former labor secretary who is occasionally given airtime on NPR to spread his economic musings.

After the vague hand-waving "studies show" remark, Reich made it clear he was talking about all employees, not just professional ones who make complicated decisions. I'll give him the doubt and assume he means full-time employees, but I still have trouble believing a cashier at a chain store is going to be more than $1000 more productive because of a vacation.

Commenter Kebko at Mike Munger's blog realized a fatal flaw in Reich's idea:

My head just exploded. If workers are so much more productive that you'd have enough additional output to compensate additional workers to cover for vacations, why would you need the additional workers? Never mind. Needing more people to do the same amount of stuff lowers unemployment!

Reich's point about increasing employment by lowering the amount of work each employee is allowed to do is a very old idea popular with labor unions called "spread the work." Henry Hazlitt dedicated an entire chapter to it in Economics in One Lesson. In order to pay a larger pool of workers the same amount each to complete the same limited tasks currently performed, labor costs must increase, and therefor customers will have to pay more.

Why three weeks? He gives no justification why that number hits some kind of magical sweet spot. He reminds us that some workers don't get any paid time off, but he doesn't explain why giving them two weeks off would be insufficient.

I'm taken aback by how infantile Reich's idea is. Stating confidently on blind faith that the economy will be improved
 for all participants if we just require paid vacations is something I'd expect from a pothead English major, not an adult who wears a tie on a regular basis. Why aren't employers doing it now? Well because man, the system, ya know?

I think one way to improve the economy is to require Robert Reich to take 52 weeks of vacation every year from commentating and stop spreading his pseudo-intellectual ideas. That would truly be a win-win-win.

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