Trading leave

With school holidays just ending, it occurred to me that there is an untapped opportunity in our industrial relations laws and workplace practices: the possibility of trading leave. As an academic, school holidays are rarely family holidays as this is the time I have to attend conferences. That means that we end up with leave imbalances in our household; making it hard to take family vacations but invariably that I have more leave accrued than I can take.

This is probably not an uncommon problem. The chances that two workers in a household can balance their leave entitlements seems low. Differences in job flexibility and potential salaries can generate all of that. But, in our case, as in others, there is a clear gain to trade. It would be great if I could sell some of my leave to my spouse and restore balance. The same is true for parental leave.

It is relatively easy to see how this could be done. What you need to do is impute the salary-adjusted leave weighting and literally have one employer buy back leave from another. This could be any time of leave: annual, sick or parental. Those issues are household issues anyway.

Of course, we currently have a system whereby you can buy-back leave. As I have written before, that system has its problems. But it also does not allow that bought back leave to be translated into something potentially more valuable; greater leave for another person. That is a lost opportunity all around. Does an employer of a key engineer really want them taking their entitled parental leave for a sick child when another family member could do that but for their own exhaustion of such leave?

And there is no reason to think of this as just a family opportunity. Think of the possibility of people being able to help their sick mates with additional sick leave. An office could each trade a day and give a person a month or more leave. They could then make it up in a later year.

Thinking about the broader context for industrial relations and workplace practices beyond the simple employer-employee relationship is surely where we have to look for innovative policy-making.

Update: the post was picked up by Crikey and on the 2nd February there was the following interesting comment that I thought I would reproduce here:

Brad Ruting writes: Re: “Trading on the holiday market” (yesterday, item 20). Joshua Gans makes some seemingly rational points about a potential system to allow workers to trade their leave entitlements among themselves. He links to a paper by one of his PhD students on the idea, which found that it would bring many benefits to workers and improve welfare (ie, have positive net social benefits) when the minimum wage isn’t binding (which it isn’t for most workers, other than those who don’t have the luxury of leave entitlements or “full time” status these days). However, leave isn’t like other commodities. It’s a non-monetary employment benefit. It’s also secondary to monetary reward and what’s done in return for it. Leave is offered to employees to cover holidays and uncertainties that may pop up, and in the modern economy it’s not always desirable to put a money value on it. Assuming for the moment that workaholics know what’s in their own best interest, the scheme may bring benefits to workers, but would businesses really want to implement it? In an environment such as a factory, where all workers are performing similar tasks and no single worker is indispensable, this may be a way to make everyone better off and improve worker efficiency and satisfaction. However, things just aren’t that simple in the real world. Different workers do different things, with some tasks becoming increasingly specific to individual workers. If the amount of leave taken in a year suddenly had no cap (or a very high cap), it would become quite difficult to plan around employee leave and sort out interim arrangements, especially in small businesses. Indeed, some workers are needed to be around most of the time – if they’re not, it may no longer be profitable to employ them. The scheme assumes that one worker taking (or buying) leave can be balanced against another (eg, a family member) not taking it – ie, that the price will reflect the relative value of the leave between the two workers. However, this also assumes that labour across jobs or businesses can be easily compared. In the instances where it can’t – which may also be the workers who work the most and have the highest rates of accumulated leave – I find it hard to believe that such a scheme would be adopted by employers, and whether any possible productivity or welfare gains would outweigh the additional adjustment costs. Innovative policymaking is welcome in industrial relations, when it’s fair, but people aren’t like other commodities. Besides, in a super-efficient industrial relations setup, extra leave (or the number of working days per year) would be negotiated as part of an employment contract.

One quick response: I didn’t mean that a day of one person would be equal to a day of another. That would be silly. Indeed, the exchange would be pro-rated on a salary basis.

4 thoughts on “Trading leave”

  1. I don’t understand why this is better than each worker buying leave from (or selling leave to) her employer as she wishes. eg you would sell cash in some of your leave and your wife would buy some leave (with the cash from your leave, if you like).

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  2. I’ve often asked employers if I can trade salary for leave, and been told no. It’s pretty crappy.

    I like your idea of it being transferred to the cheaper/less replaceable party. Certainly makes sense for the family to have the highly-paid person keep their leave while the lower-paid member looks after a sick kid.

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  3. Joshua,

    You should have a look at the model used in some police agencies in Australia. I am pretty sure that in WA (or perhaps it was Qld) each officer contributes a couple of days a year to a sick leave bank that can be drawn on by officers who are injured at work.

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