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June 20, 2006
The vacation / income tradeoff
The chart below looks at several industrialized countries and measures their hours worked over time as well as their current productivity levels. This is a stupid chart, because it seduces us with a false or at least unsupported conclusion, that work you can work less and produce more because you'll be better rested. Charts like this one are often used to dismiss the economic success of America, with the argument that we don't have the most productive workforce in the world*.
We know that countries vary in non-economic barriers to job creation. Between minimum wages rules, strict labor laws, mandatory vacation (see the next chart) and employer paid taxes, the the true minimum productivity of any employee before it becomes economical to employ them on the margin can vary a great deal between economies. That directly causes much of the variation in average productivity we see in this chart. If you don't produce enough to pay for a state mandated good job (the only legal kind) you just get to be unemployed and then you don't count in the numerator (aggregate output) or the denominator (total hours worked).
Now Norway, which tops the productivity chart also has lower unemployment than the us, but Norway's workforce participation rate is a percent lower than that of the US. So they might actually be more productive than the US is, but not by as much as this chart suggests. Especially when you consider vacation.
Then take a look at this chart, which examines vacation time in the same countries. Notice that in each case the average vacation is significantly above the legal minimum. In the case of Norway, despite a four week minimum, the average is six and a half weeks.
Consider what this does to the employee's decision making. I know that I have to pay a princely sum to get others to do my chores, so instead I spend my vacation doing things like painting my home. I read a great example of this in action but can't seem to find it. The vacation becomes a way of compensating employees without paying taxes on that compensation.
So I guess it all comes down to what you mean by productivity. If you mean what would the economy's economic output be if you increased labor by one, then perhaps this chart is of some value. On the other hand, if what you really care is who has the better capital and labor stocks then in modeling the labor force you have to control for the effects of work force participation, and total hours worked or all you are measuring is the productivity of the last employee that is legal to employ.
The charts in this entry come from an article in Foreign Policy "The Influential Tourist"
Posted by OneEyedMan at June 20, 2006 3:21 PM
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