In my previous post on the issue I said that the idea of making the 4th week of holiday’s tradable sounded like a good idea to me. In the comments I was forced to discuss this issue in detail – and as a result, I aim to clarify why I think making the 4th week tradable is an improvement on not having a tradable 4th week.
Fundamentally, I believe that the argument for the 4 weeks of holiday’s is:
- It is costly to negotiate holiday’s on an individual basis,
- Firm’s prefer labour to be “available” during a given period of time,
- As a result, firms set up general contracts mainly, and these contracts involve a lower level of holiday’s than the general employee would like.
- “Society” more heavily weights the welfare of the employees,
- Therefore, the level of holiday’s is too low.
Now, I am NOT saying I agree with this argument – it is just the justification that I see for the policy in the first place. Taking this as given, the government has set it up so employees get 4 weeks off.
What does the voluntary exchange of a week of holiday do in this case? Well all contracts have “4 weeks off” in them. If an employee is willing to exchange this week for some cash they can strike a deal with the employer – who is likely to be willing to given that the value the availability of workers. In this case, the ability to trade the week off benefits both the employer and the employee at an individual level – and the welfare of other employers and employees is unchanged.
As a result, this must be a pareto improvement. I am happy for the government to do things that don’t leave anyone worse off and make some people better off – that is why I appreciate this policy.