Taking leave

By Felix Salmon
October 3, 2010

I’m a month late to the debate about paid and unpaid leave, but I think there are a couple of points worth making which seem to have been missed. In general, I’m with Ezra on this one: paid leave is a good thing, and we should have more of it. And on a personal level I also agree with Reihan when he says that “unpaid vacation is a valuable perk”. Reuters has a mechanism for letting its employees take unpaid vacation when they run out of paid vacation days, and that was something I was very happy about when I joined.

On the other hand, the unpaid vacation at Reuters is not sold as a valuable perk — quite the opposite, in fact. When I was talking to Reuters about the possibility of taking more vacation than they were offering, the response was basically “you can’t do that, because if you do, you’ll have your pay docked for the extra days you’re on vacation”. It’s a very different way of spinning “yes, you can do that if your boss is OK with it; once you run out of paid vacation days then at that point your vacation days become unpaid”.

But there are good reasons why HR types might assume that employees would consider unpaid leave to be something other than a perk. For one thing, it can easily double the cost of a vacation: it’s a great way of making concrete the notion of “opportunity cost”. When I was a freelancer, there was little if any opportunity cost to taking a vacation: I just did all my work when I wasn’t on holiday. But my wife, who was paid by the hour, had a substantial opportunity cost: every day she spent on vacation meant lost income. For people on payroll, unpaid leave is a real disincentive to take vacations, which are normally expensive enough to begin with. Matthew Rognlie puts this well:

Paid leave makes leisure time more enjoyable, since you’re not incessantly bothered by the fact that you’re losing money by being away from work. Employees are willing to sacrifice wages and flexibility for this psychological comfort.

On top of that, our lifestyles are very much based around regular payments. Rent, or mortgage payments; car payments; credit-card payments; utility and phone bills: they all come around with distressing regularity, and they can be very hard to pay if you suddenly find yourself sans a paycheck, even temporarily.

More generally, having employees take time off from work is a good thing for employers — to the point at which most financial-services companies have compulsory-leave policies. It’s worth remembering that almost all workers in the US get 104 days of paid leave per year just from getting weekends off alone: those two days are hugely valuable and necessary to prevent burnout. And it’s important for companies to have constant real-world stress tests, ensuring that they can function well in the absence of any given employee.

As the wired world sucks people in to work weekends, a Netflix-style vacation anti-policy starts to look like the only sensible response. Although that kind of thing can only realistically be applied to people in the knowledge economy — the workers that Robert Reich calls symbolic analysts.

Rognlie offers a thought experiment:

Suppose that two otherwise identical companies, A and Z, differ in their vacation policy: company A offers higher wages but no paid vacation, while Z has slightly lower salaries and paid leave. In general, who will choose to work at company Z instead of A? People who like to take time off! To the extent that this is correlated with general laziness (not easily detectable in other ways at the hiring stage), it will make company Z’s labor pool less effective, discouraging it from offering paid leave in the first place.

I’m not at all sure that a desire to take paid leave is correlated with general laziness. If anything, the opposite might be true. If A and Z were truly identical but for their vacation policy, I’d be inclined to go long Z and short A. Company A might outperform a little in the short term. (Or, it might not.) Either way, it would be much more prone to the tail risk of a catastrophic blow-up.

My feeling is that the less paid vacation you have, the less vacation you’ll take. And the less vacation a company’s employees take, the higher the risk of that company falling apart through burnout or blowup.

Now, if you’ll excuse me, I need to take some time off from blogging on a Sunday to plan my upcoming holiday in South Africa.


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