Forgive me, Ezra, if you’ve already made this argument vis-a-vis the mandated vacation posts you’ve been writing–I know you touched on the logic I’m about to mention as it regards other issues–but the same problem faced in the efficient automobile conflict I talked about yesterday very well might apply to mandated paid vacation. Many firms (mine for example) offer paid vacation and the option to take comp time off after working long hours, but concerns about competitive position within the firm often mean that such time goes untaken. Every worker might love to use their full complement of time off, but unless everyone does, those that do not stand to gain relative to their co-workers; by giving up vacation, they signal their wonderfulness as employees and improve their prospects for promotions and raises. Negotiating for more time is subject to the same effect. Asking for more money in no way comments on one’s willingness to work hard relative to others, but asking for more vacation time seemingly does, by signaling, perhaps, a reduced commitment to the firm. Companies may be more than willing to give out additional vacation time, but coordination problems prevent workers from asking for it.

In these cases, mandated vacation time, which must be taken, solves the problem. Because everyone has to take time off, no one loses out in the eyes of the employer. A better outcome is reached relative to one where everyone makes their own uncoordinated but individually rational decisions. Coordinated compensation negotiations would also solve the problem, by allowing workers to push for a more vacation/less income compensation package without damaging their competitive position within the firm. This need not affect overall compensation, and therefore need not affect aggregate employment (although, if productivity is held constant, and workers choose to work less for less money, it could be the case that firms will choose to employ larger staffs–overall hours worked and salary would remain constant, but employment increases).

This isn’t to say that there wouldn’t by any downsides (coordinated bargaining might lead to employment protection schemes, which could increase unemployment), but it’s very easy to imagine that overall utility would rise, and that firms wouldn’t necessarily be unhappy about the outcome.