As of close of business this afternoon, I am on long service leave. But is this an anachronistic institution?
Certainly long service leave’s historical rationale is no longer compelling. It began in South Australia and Victoria in the 1860s as a scheme that allowed civil servants 6-12 months leave to go home to Britain after 10 years service in the colonies. Given the lengthy transit times a substantial period off work was necessary to make the trip to Europe. Obviously this is no longer the case.
It wasn’t until the 1950s that long service leave became widespread in the private sector, and it is now a statutory right. No other country incorporates such a right into their labour market regulations.
Criticism of long service leave is not confined to free marketeers. Some people say that changes in labour market conditions towards more casual and contract employment mean that long service leave is less relevant.
This objection is probably over-stated, as contrary to common perceptions job tenure patterns in the Australian labour market are fairly stable. In February 1974, 24.1% of ABS labour market respondents had been in their job 10 years or more. In February 2008, 24.2% of respondents had been with their employer for 10 years or more (I’m not sure whether the change in question from job to employer is significant).
There has also always been high turnover – 25.1% in their jobs for 12 months or less in 1974, 22.1% in 2008. The later ABS report does not publish its figures by age, but I expect the earlier pattern of high turnover being driven by young workers persists. Most workers will eventually move into a long service leave eligible job, and a large proportion will eventually qualify for long service leave.
Even so, it is not clear why overall employee compensation should be biased towards people who stay with the same employer for a long period of time. In some firms it could make sense. Perhaps those with high levels of firm-specific human capital would benefit from such an incentive. Other firms may find benefit in allowing employees to refresh themselves (my employers may gain from allowing me time away from urgent things to concentrate on more interesting things). But in many other cases staff turnover in under 10 years is healthy, allowing new people to take a fresh look at a job.
As with many aspects of the labour market, the diversity of jobs and employees suggests that individual contracts or enterprise agreements would be a better mechanism than statute for deciding on leave arrangements.