- Paid vacation -- why would one person pay another person to be idle?
- Free election -- how can it be free when voters are under the duress of taxation and other impositions?
- Keynesian economics -- how can the rejection of economics be a form of economics?
Saturday, December 20, 2008
Contradictions in Terms
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11 comments:
Paid vacations are not a contradiction in terms. They are an emergent market phenomena. Employers offer to pay for a certain amount of employee idleness in order to attract employees. Employers are also aware that a certain amount of vacation time is good for overall productivity, and so by paying for it they're ensured their employees will take it.
I believe it was Irwin Schiff who (quite sensibly) rejected the notion of any qualifiers put in front of the term economics. He said we don't have Japanese physics, why should we have Austrian economics? After all, it is either sound or it isn't. The fact that there are all of these sometimes contradictory schools of economic thought means that economists have not been able to weed out the wheat from the chaff
Paid vacations are an "emergent market phenomena?" According to this, the practice started in the 1950s or 1960s. As a non-U.S. native, what I find interesting is that the U.S. is one of the few, if not the only, country where a minimum leave is not required by law (see here).
Yeah, I agree with David. People pay people to be idle all the time. You're not intensely laboring every hour you are at work. Hell, taking a crap on company time is a form of paid vacation.
F.A. Harper wrote, "You [an employer] and I know that you can't pay us for not working during that week, except by taking from our pay for the other weeks of the year. It has to come out of what we earned in the other weeks of this year....
"So when you say it is to be a vacation with pay, you are being misleading. What you must really mean is that it is to be a vacation without pay, but that we will be given some pay in that week for work done earlier in the year and already due us—held back at that earlier time, so as to be available to pay us during this week of vacation.
"Or look at it this way: If we were to work that week instead of vacationing, we could produce about 2 per cent more in the year than if we didn't work that week. And if we worked, you could pay us about 2 per cent more for the year than if we didn't work.
"So, really, this is a vacation without pay rather than a vacation with pay, so far as the year's total pay is concerned."
Sheldon, I think Harper's (and your) interpretation is applicable to someone who is being paid on the basis of hours worked, say, to assemble a car or to respond to customer inquiries, and these people are generally compensated with "overtime" when they work over a certain number of hours a week. There are other kinds of jobs, like salesperson, where your "hourly" compensation is minimal, but your rewards for reaching certain goals (e.g., closing sales) can be greatly enhanced. And there are yet other jobs like computer programming or managing a group of people, where it doesn't really matter how many hours you put in, because you're again being paid to achieve some goal(s), e.g., successfully deliver a project. So although you're nominally paid on an hourly basis and accrue "paid vacation time" (and "sick days" also) each pay period, the compensation is not really for "hours worked" and it's even possible to lose the accrued time, depending on company policy.
I didn't say an employee is paid for hours worked. He's paid to produce revenue for the firm. With what revenue does an employer pay an employee during his vacation if not the revenue produced by the employee when he worked? Where can that money possibly come from? Is it charity?
I would argue that employees are not paid to produce revenue. What revenue is generated by, say, a receptionist, a bookkeeper or a janitor? They are paid to provide a service. They are paid from revenues generated from other sources. This is quite clear when for example, the janitor or bookkeeper become independent contractors. Someone who assembles products that will later be sold, may be more related to producing revenue but does he not get paid even if the items stay on the shelves? And I'd say even a salesperson, who is more involved in revenue generation, is paid to provide the "selling service." And even an entrepreneur (as argued IIRC by Rothbard in Man, Economy and State) is compensated for his/her business management skills.
This would mean firms pay people for services that are of no value, -- that do not aid in the production of whatever it is that they produce. Why on earth would they do that?
If the firm doesn't hire a receptionist, the owner would have to do the job, but that would cause the firm to forgo the revenue that the owner would have created had he been doing what his comparative advantage dictates. So hiring a receptionist does produce revenue. If the market is competitive, the wage of a receptionist tends toward his or her discounted marginal revenue product.
By the way, a manufacturing worker won't be paid for long if the product remains on the shelves.
"This would mean firms pay people for services that are of no value, -- that do not aid in the production of whatever it is that they produce. Why on earth would they do that?"
I don't understand how you reach that conclusion from what I said previously. As you point out, the owner pays the receptionist because the former finds value in what the latter does, e.g., free up the owner's time to do other things that may be of more value to the business.
And the same applies to paying for assembling items that may be left unsold. The owner is willing to take that risk, but he/she certainly values the assembler's work (or he/she wouldn't keep them in the payroll). Whether the owner will see that value translated to greater value to him/herself will depend on whether the items are sold and at what price.
As another example, firms pay scientists or engineers for R&D activities that many times will lead to zero value in the marketplace, but obviously the firms' owners or managers value the R&D work because it may result in much more value.
I'm on a salary, and get paid $XXX per year. I also get 15 "PTO" days per year, which is paid time off I can use for sick days or vacation. If I use all 12 PTO days, I get paid $XXX. If I use none of them, I still get paid $XXX. My salary does not diminish when I take vacation.
From the accountant's perspective, it is not free and is a significant expense. But from my perspective I am being paid for vacation.
p.s. PTO/Vacation is indeed an emergent market phenomena in the US. Unlike other nations, there is not a central bureaucrat who decides how much vacation people get. It's emergence may have been influenced by government tax structures, but it did emerge through a market process. Ditto for most other employee benefits.
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