The Impact Cost Of Increasing Statutory Holiday Entitlements

Report for the New Zealand Engineering Union, August 1998

Productivity and Employment contains an estimate of average annual hours worked by OECD economies.

Keywords: Labour Studies;

There is a proposal to introduce four week’s statutory leave. The current situation is that the Holidays Act makes provision for an annual leave entitlement of three weeks (15 days) paid leave per annum. In addition there is also statutory provision for 11 days, although because Anzac and Waitangi days do not “mondayize” the number of such days are 10.4 in an average year. This paper estimates the impact cost of increasing the statutory minimum to four weeks a year.

The impact cost of increasing the statutory minimum holiday entitlement is less than $350m a year, amounting to .8 percent of employee costs, and just over .3 percent of nominal GDP.

The Existing Situation

Table 1: Percent of Workers Entitled to 4 Weeks Holidays

After 1 year 6 38 1 1 19 17
After 4 years 11 40 5 1 23 21
After 5 years 26 53 22 4 27 35
After 6 years 73 76 87 64 82 75
Eventually 89 99 94 96 99 93

Source: Harbridge, Crawford & Kiely (1997:33)

According to the annual survey of the VUW Industrial Relations Centre, 93 percent of employees have contracts which at some stage entitle the worker to an additional week’s annual leave after a period of service. The profile of the entitlement is shown in Table 1.
The table does not give the proportion of workers who are recipients of four weeks annual leave, since the numbers of workers with a given period of service is not known. Note too, that this survey covers only 416,000 workers or around a third of total employees.

While over a sixth of contracts provide for the additional week after one year’s service, the typical worker is entitled to it after 6 or more years service. There is considerable variation between employment sectors (shown) and industry. In Agriculture 73 percent of workers are never entitled to four weeks, while in Mining, Transport, Education, and Other Community Services over a quarter of workers are entitled to four weeks after only one year’s service.


Country Annual
Austria 30 10 40
Germany 24 13 37
France 25 10 35
Sweden 25 8 33
Spain 22 11 33
Switzerland 20 13 33
Britian 22 8 30
Australia 20 10 30
Netherlands 20 8 28
Japan 10 18 28
15 11 26
Ireland 15 10 25
United States* 10 13 23
Canada 10 11 21
Phillipines 5 10 15

Source: NZOYB (1997:362).
Notes: Public Holidays excludes Saturdays and Sundays

* typical allowance, no statutory minimum.

The authors note that “[t]he trend we observed in the period 1994-1996 for the qualifying period for the four weeks annual leave to be reduced, is further confirmed by this year’s data. There is a demonstrable downwards shift in eligibility from 7 years to 6, and from 6 years to 5.” (1997:33)

International Comparisons.

The New Zealand Official Year Book provides information on annual leave entitlements.(1) (Table 2) New Zealand’s statutory provision for paid holidays is a little below the median of this selection of mainly rich countries. An extra five days would New Zealand group with Australia, Britain, Spain, Sweden, and Switzerland. Note the nearest neighbour Australia has a minimum of 20 days annual leave.

Actual Leave Provisions

The best information on actual leave provision comes from the Labour Cost Index which attributes 83.03 percent of total labour costs to salary and wage rates and 11.08 percent to annual leave and statutory holidays. There are 261 days in an average year which are not weekends. Of these, holidays must be 30.7 days.(2) The number of public holidays in the base year was 10 days, so the annual holidays amount to 20.7 days.
Table 3: Annual Leave by Sector

Sector Annual Leave (Average)
ALL 20.7 days
Private 18.1 days
Public 27.0 days
Public without teachers 20.0 days
ALL without teachers 18.6 days

This figure is contaminated by the provision for teachers where all school holidays are counted as annual leave, although teachers spend a considerable portion of the student’s holidays administrating, preparing, and marking and upgrading their skills. Statistics New Zealand has kindly provided the annual holiday statistics by public and private sectors, and with and without teachers. (Table 3)

This paper uses the “All without teachers” estimate of 18.6 days, in effect treating teachers as outside the calculation. This will not substantially affect the figures, other than were there to be more school holidays. This 18.6 days means the average worker (teachers excluded) receives 3.6 days annual leave more than the statutory minimum.

The additional 3.6 days may seem high. There are two main reasons why it might be so. First, the average is weighted by pay rates, and higher paid workers are more likely to get more holidays.(3) Second there are a few workers who receive more that four weeks annual leave. These are typically senior managers and shift workers (as well as teachers as treated in this data base).

The Impact Cost of Increasing the Statutory Provision for Annual Leave.

Suppose that the minimum annual leave provision were 20 days instead of 15, and that all those who were already in receipt of 20 (or more) days of annual leave had no adjustment to their entitlements. equivalent to raising the annual average from 18.6 to 20 days. Reversing the calculation of the previous section, this raises the share of holidays in total labour costs to 11.6 percent, equivalent to an increase in employee costs (totalling $42.2b in 1997/8) of about $300m a year. This is an underestimate in so far as the 3.6 days includes the effect of workers already with more than 20 days. There are no available data on this effect, but it cannot be more than $50m.

This suggests a good estimate for the cost of increasing the statutory provision from 15 to 20 days annual holidays would be less than $350m a year. Basically this would be a first impact effect, the cost which would be (almost) immediately incurred after the statute was changed.

An impact cost of $350m a year amounts to .8 percent of employee costs, just over .3 percent of GDP. Note this is an upper bound.(4)

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1. Note the New Zealand figure does not allow for the lack of “mondayization”
2. .1108/(.1108+.8303) X 261 = 30.7
3. This effect does not affect subsequent cost calculations, because it is offset by lower paid workers being bigger beneficiaries of any increase in the statutory minimum.

4. Added in 2002 For OECD estimates of annual hours of work see Productivity and Employment: New Zealand’’s Post-war Economic Growth Performance

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