Both the private and public sectors can be pretty imaginative when devising ways to acquire or control other people’s money.
The public sector does enjoy one specific advantage to employ, though: enforcement.
Congress can write something into law and for everybody but the off-the-grid folks that’s pretty much the whole story. Pay it willingly and promptly or we will make you pay it the hard way.
Excluding the mob, the private sector lacks an enforcement arm and has to make do with attempts to boost the prices of goods and services by restraining competition in some way or with add-on fees that are disguised as cost-recovery items. “Shipping and Handling,” for example, is a favorite revenue source in the TV marketing segment of the direct sales industry.
The private sector, though, always works to some degree under the cloud of uncertainty as to how consumers will respond to a price increase. Some may seek competing or substitute products and services while some may defer purchases entirely. The initial, fee-crazed stages of the airline industry’s efforts to recover its increasing fuel costs, for example, resulted in a reduction in discretionary air trips.
Consumer reaction is critical when considering a proposal that would have a significant change in price levels, even if prices or economic effects are never mentioned. In its most recent report, for example, the Center for Economic and Policy Research concludes that, “The United States is the only advanced economy that does not guarantee its workers any paid vacation time.”
The report is a review of the employment laws of 21 countries, including ours, that have highly developed economies. There are some interesting aspects of differing employment laws in this review and the extent of government control and meddling in some countries is enlightening in its own right.
The report limits itself to a review and tabulation of the laws and there are no specific policy recommendations made, but readers would have to be pretty dense not to get the message in the text and graphics that in terms of legally mandated paid vacations and holidays, “One of these things is not like the others.”
Actually, it should be “Two of these things are not like the others,” since Japan, though it does require paid vacations, just like U.S. law, ignores paid holidays. Still, from an economic policy standpoint it is accurate to say that the United States stands alone in letting the market do most of the work in the area of paid vacations and holidays.
The market has done a pretty good job with it overall. By the report’s own data, the average American private sector worker gets ten days paid vacation — two weeks, in other words — and six paid holidays each year. Over three-quarters of American workers get some paid vacation and holidays, and most of those who do not get these benefits are employed in low-wage, low-skill jobs, which tend to have high turnover.
It is certainly true that the United States is not Europe, but only a few flunking geography students ever thought it was. The American workplace doesn’t look like or “feel like” a European workplace, either, although in some industries technology is reducing the cultural differences.
From an economic policy standpoint, the question raised by the Center for Economic Policy Research report is whether the federal government should intervene in the labor market with a mandate to insure some level of paid vacation and holidays for all workers.
From a government perspective the best thing about a mandate is that it isn’t clear who is going to pay for it. If you guessed “us,” though, you wouldn’t be wrong, since in the end that is always the correct answer. Nationwide, the cost of labor will go up, taking the total cost of products and services up with it.
In market meddlers’ dreams, the increased costs will be absorbed by the fat-cat, cigar-smoking, capitalist exploiters. In the real world, though, the market will determine what happens. Prices may go up, wage rates or employment may go down, some businesses operating right at the margin will cease operations. Most likely some combination of all of these effects will result.
Will these negative effects on our economy be offset by increased spending by workers? It is possible, but only if employment and wage rates remain unchanged, which seems unlikely given the way the market works.
The historical pattern of workers’ behavior is that, given a choice, most prefer wage increases to time off. They also prefer wage increases to more extensive health care insurance coverage, as a recent Rasmussen poll indicates. We should keep this preference in mind before we mandate what people should do with their money or their time.
James McCusker is a Bothell economist, educator and consultant. He also writes a monthly column for the Herald Business Journal.
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