Flexible Public Holiday Arrangements: An Example of an Efficiency Wage

Flexible Public Holiday Arrangements

By Fabrizio Carmignani and Ambika Zutshi

Workers value flexibility, as it provides them with a better work/life balance among other things. Hence the advantage of the flexible public holiday arrangement which, done properly, can be a win-win solution that increases productivity and strengthens workers’ wellbeing.

We value our employees’’, ‘‘Employees are our biggest assets’’, ‘‘Employees are invaluable for us’’, etc. Phrases such as these are common across company websites and other public-facing communication. Nonetheless, how does an employer demonstrate that they value their employees? This question has been answered in myriad ways by different disciplines (see, for instance, Shields et al. 2015). Economics, in its neoclassical version, provides what is possibly the least compassionate answer: by paying a wage equal to the marginal productivity of the worker. This can be further compounded by the sentiment (rightly or wrongly) across current and potential workers that they can be replaced anytime with another worker for lower pay and benefits. However, employers generally behave differently and pay an efficiency wage that is sufficiently high to induce the workers to put their (best) effort into their jobs and achieve the highest possible level of productivity. In other words, rather than taking productivity as a given, the employer fosters productivity by paying higher wages to good workers, even if there are unemployed workers who would accept to work for less (Shapiro and Stiglitz, 1984).

The employee appreciates being paid a “high” wage and hence works harder; the employer pays a “high” wage and obtains increased output per employee.

The efficiency wage uses a monetary reward to create a win-win situation for employees and employers. The employee appreciates being paid a “high” wage and hence works harder; the employer pays a “high” wage and obtains increased output per employee. The notion of efficiency wage can be extended to the broader package of workplace arrangements as long as employees do value non-monetary rewards. From an economic perspective, this provides a rationalisation for the growing popularity among both employees and employers, of flexible work arrangements such as flex time, compressed workweek, and working from home (WFH). Workers value flexibility, as it provides them with a better work/life balance and in turn a sense of improved employee morale, job satisfaction, and potentially higher productivity and retention.  

woman with dog working

There is growing evidence (Boltz et al. 2023) that flexibility as a non-monetary reward in theory, can have the same effect as the monetary reward embedded in the efficiency wage, leading to greater productivity and, ultimately, better outcomes for both worker and employer. So, can similar principles be applied to the rising trend of providing flexible public holiday arrangements to an employee? Before jumping onto the bandwagon, employers need to consider the nature and size of their business operations, capabilities and capacities of their workforce, not to mention any regulatory requirements across geographical borders. An employer needs to minimise the risk of the use of flexible work arrangements as a non-monetary reward backfiring as evidenced by WFH reducing the sense of teamwork and increasing isolation from employees’ perspective, and absence of separation between workplace and personal space, all of which might lead an employee working longer hours and/or feeling more fatigued. When working primarily remotely, the worker can become less visible, and hence be overlooked for career opportunities. The consequence would be decreased (rather than increased) productivity and a lose-lose (rather than win-win) outcome for workers and employers. The interaction and engagement fuelling connectivity, productivity and creativity amongst workers that derive from being physically in the same place cannot be replicated by online connectivity. Accordingly, the employer needs to create and enforce WFH/flex-work policies that are inclusive of employees’ diverse backgrounds and commitments. No one policy can be applied blanketly, nonetheless, to ensure equity and transparency in policy implementation, there must be flexibility in the policy itself to allow supervisors to make the call.

From the employer’s perspective, it is preferable to combine different forms of flexibility to minimise the potential impact of their backfiring. An example is the flexible public holiday arrangement. In simple terms, this is an arrangement where workers are given (some) flexibility to swap a public holiday on the calendar for another day that has cultural, religious, or social importance to them. This arrangement is increasingly being considered by employers, particularly as an approach to recognise diversity and support the inclusion of their workforce. Considering the value that most people attach to the celebration of particular days of importance in their culture, religion or societal circles, this flexible public holiday arrangement is likely to represent quite a significant non-monetary reward for workers. Simultaneously, with a minimum of coordination between employer and worker, swapping public holidays should not have major adverse implications on teamwork and collegiality. That is, this is an arrangement that has a strong potential to produce positives for both worker and employer, with reduced risk of backfiring. 

Flexible arrangements that are unilaterally imposed by employers are unlikely to be perceived as a reward by workers and would therefore not generate any significant benefits in terms of productivity and/or satisfaction and well-being of the worker.

The flexible public holiday arrangement will work best if the employer and worker coordinate with one another by discussing and agreeing on the parameters of the arrangement, e.g. how many days can be swapped, duration of the notice before swapping of the holidays, limitations related to days of closure of business or peak business operation period for instance. A two-way conversation will increase the potential for win-win outcomes resulting from any type of flexible work arrangements. Flexible arrangements that are unilaterally imposed by employers are unlikely to be perceived as a reward by workers and would therefore not generate any significant benefits in terms of productivity and/or satisfaction and wellbeing of the worker. Similarly, when flexible arrangements take the form of an ultimatum imposed by workers on the employer, then the risk that these arrangements compromise the operational requirements of the business increases.

In essence, the pandemic has spotlighted the value attached by workers to non-monetary rewards in the form of flexible work arrangements. This has provided workers and employers with the opportunity to redefine the concept of efficiency wage, therefore creating scope for win-win solutions that increase productivity and strengthen workers’ well-being. Flexible public holiday arrangements represent a new form of flexibility that employers and workers should consider as it has a strong potential for delivering a large win-win payoff, but only to the extent that it is clearly parameterised to fit operational requirements and designed from a consultative two-way conversation between employer and worker in the current era of quiet quitting and Chrono working.

About the Authors

Fabrizio CarmignaniFabrizio Carmignani is a Professor of Economics and Head of School and Dean (Business) at the University of Southern Queensland, Australia. He holds a PhD from the University of Glasgow in the UK. Prior to undertaking his academic career, he worked as an economist at the United Nations.

Ambika ZutshiProfessor Ambika Zutshi holds a Bachelor of Environmental Sciences, a Master of Environmental Management, and a Doctor of Philosophy. Her current research is focused on corporate social responsibility, business ethics, higher education, supply chain management, and stakeholder relationships. She has over 100 publications in journals and book chapters. Ambika is currently an Australasian Associate Editor of The European Business Review, Emerald; an editorial board member of the International Journal of Consumer Studies; and the Editorial Advisory Board of Management of Environmental Quality.

References

  • Boltz, M., Cockx, B., Diaz, A. M., & Salas, L. M. (2023). How Does Working‐time Flexibility Affect Workers’ Productivity in a Routine Job? Evidence from a Field Experiment. British Journal of Industrial Relations, 61(1), 159-187.
  • Shapiro, C., & Stiglitz, J. E. (1984). Equilibrium Unemployment as a Worker Discipline Device. The American Economic Review, 74(3), 433-444.
  • Shields, J., Brown, M., Kaine, S., Dolle-Samuel, C., North-Samardzic, A., McLean, P., Johns, R., O’Leary, P., Plimmer, G. and Robinson, J. (2015). Managing Employee Performance & Reward: Concepts, Practices, Strategies. Cambridge University Press.

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