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Mandate Us to Utopia

Here’s a letter to Washington, DC, radio station WTOP:

You report that the U.S. is the “only advanced economy without guaranteed vacation.”  The tone of your report, however, mistakenly suggests that this fact harms American workers.

When government mandates vacation time it artificially restricts employers’ ability to compete for employees by offering, in lieu of the minimum number of vacation days mandated by government, other forms of compensation such as higher take-home pay, greater employer contributions to pensions, or more flexible daily work schedules.  Therefore, such a mandate reduces workers’ bargaining power over the terms of their employment contracts.  Each and every worker – regardless of his or her personal circumstances or preferences – has no option but to accept the vacation terms as dictated by government.

So rather than report in somber tones that the U.S. is the “only advanced economy without guaranteed vacation,” you’d serve the cause of accuracy better by reporting in upbeat tones that the U.S. is the “only advanced economy still to guarantee to its workers the freedom to determine how much vacation time each would like in place of other forms of compensation.”

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

Note that the issue identified in the letter above doesn’t disappear even if we assume, contrary to fact, that firms have substantial monopsony power in hiring workers.  As long as there are several dimensions to employment contracts and conditions – take-home pay; a variety of formal fringe benefits (such as employer contributions to workers’ pensions); various aspects of work conditions (such as leniency regarding employees making personal telephone calls while on the clock); being hired (versus not being hired) in the first place – a government mandate that forces firms to offer more worker-friendly terms on one dimension gives even monopsonistic firms incentives to offer only worse-for-workers terms on one or several other dimensions.


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