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Do Mandatory Holidays Mean Less Freedom and Flexibility for Workers?

There are many factors to consider when valuing compensation agreements between employees and employers. One standard in a majority of occupations is holiday time off or additional compensation for working. The article that follows visits the subject of federal and national holidays and questions if there is an employee cost to this supposed benefit. It was written by Patrick Carroll who is an Editorial Fellow at the Foundation for Economic Education and holds a degree in Chemical Engineering from the University of Waterloo.

Paul Hoffman – Managing Editor

One of the things people tend to appreciate throughout the year, and especially during the Christmas season, is statutory holidays. These days off are taken for granted by many, and few people stop to think about whether they have any drawbacks. But as any good economist will tell you, everything comes with tradeoffs, and holidays are no exception. The trick, then, is to figure out where the cost lies, and who, ultimately, is paying it.

The True Cost of Statutory Holidays

At first blush, it may be tempting to assume that our employers are the ones taking the hit. After all, they are losing productive work hours from their employees. And if all else were equal, that would certainly be correct. Shareholders, ultimately, would bear the cost of this lost productivity.

In most cases, however, things are not that simple. Consider, for example, a world in which there are no statutory holidays. Let’s say there’s a worker in this world who gets twenty paid holidays per year as part of their compensation. Now, let’s say the government introduces ten new statutory holidays, so every employer is now mandated to give their employees a minimum of ten days off per year. What happens?

Clearly, the employer is not going to give their worker ten additional holidays. After all, the government didn’t say it had to be ten more than what the worker was given in the past. They just said it had to be at least ten. The most likely scenario, then, is that the employer will give their worker the ten statutory holidays and ten additional holidays, so that they break even at twenty days per year.

The reason the employer will gravitate toward the same number as before is because of market forces. Time off, like salary, is part of the “price” of labor, and as such, it is determined by supply and demand. Thus, days off tend toward an equilibrium point determined by the market, just as salaries do.

The introduction of statutory holidays can therefore be likened to the introduction of a minimum wage. To the extent that the market “rate” is already higher than the mandated minimum, the new law has no effect on the level of compensation. And since almost all employers give more days off than they are required to by law, it seems clear that market forces, not statutes, are determining the total number of holidays most workers get.

The implication, then, is that the total number of holidays will gravitate toward the market “rate” regardless of whether some of those holidays are mandated or not. Thus, more statutory holidays just means fewer regular holidays. So really, the hidden cost falls entirely on the worker.

The Value of Flexibility

“Fair enough,” you might say. “But if they still break even, what’s the big deal? Isn’t the worker just as well off in either case?” The answer here is no, because while they may get the same total number of days off, their flexibility regarding when they can take those days is significantly curtailed.

Going back to the salary analogy, we’ve already established that if a worker gets paid, say, $20 per hour, a minimum wage of $10 per hour will not make any difference to their total pay. But imagine that instead of simply mandating a minimum of $10 per hour, the government also mandated how that $10 would be spent.

Clearly, this is harmful for the worker. Whereas before they could choose how they spent their entire salary, now they can only choose how they spend part of it, and the part that they can’t control will invariably be spent on things they consider less important than what they would have spent it on themselves. The same logic applies to holidays. If there are ten statutory holidays per year, that’s ten days that can no longer be allocated by the worker.

The reason that flexibility is so important is because the value of time off largely depends on when it’s taken. Imagine your kid gets sick or there is a death in the family. Those are times when days off are more important. But if half of your holidays are fixed by legislative fiat, you lose the ability to use that time when you actually need it. You are forced to “spend” those days on time that is less valuable, which means you can’t spend them when you really need them.

Vacations are also curtailed because of statutory holidays. Since the timing of the mandatory days is rigid and spread out, it’s impossible to use that time off for longer trips that take multiple consecutive days, even though that may be preferable to a series of long weekends.

Of course, if people want to take certain special days off like Thanksgiving or Christmas, they can still choose to do that. But forcing people to take certain days off against their will only pushes them away from their optimal holiday allocation, just like forcing people to spend money on certain things pushes them away from their optimal capital allocation.

If we really want to help workers, then, statutory holidays should be repealed. Said differently, workers should have the freedom to take their time off when they need it most.

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