Can we still afford holidays?

Europeans take plenty of time off while the rest of the world carries on working. Perhaps not for much longer...

Strikes on the post and the Tube, then the football - a relief that it is nearly holiday time, something to look forward to.

It has become normal for most Europeans, certainly those in white-collar jobs, to get five or six weeks of paid holiday each year; in the education industry it is more. It seems so normal that it is hard to appreciate that by the standards of the rest of the world, and by the standards of our own recent past, the European holiday pattern is very unusual.

In the United States, two weeks is still the norm, three weeks after a few years' service; in Japan they get two weeks, but don't dare take it. True, in the US there are conventions and other forms of business travel to compensate; in Japan, the whole firm or division might take a three-day break in Hawaii, paid for by the company. But for real holiday time, Europe is unique.

This is all very recent. Schoolteachers and university lecturers always had long holidays, and the French have always taken August off. But go back to the Sixties and the European patterns were much closer to the US: two weeks, maybe three. A giant industry has developed in Europe, creating services for people to buy during their time off: package holidays are proportionately much larger here than in the US or Japan.

This raises two obvious questions. Why did Europe, unlike the rest of the world, extend its holidays? And in view of the globalisation of the world economy, can it continue to enjoy this particular luxury?

The answer to the first is partly tax. The shift to leisure took place in the Sixties and Seventies, when marginal taxes in Europe on earned income were particularly high. So it made more sense for employees to take their rewards not in more money, but in more time off.

But it cannot just be tax, for marginal tax rates have tended to come down in Europe, but holidays have not. For, having got a taste of the joys of leisure, we are loath to give them up.

Everywhere in the world there are people who make the explicit choice in favour of leisure: they would rather have a lower material standard of living, but have a bit more time to themselves. But they make this choice in different ways in different economic regions.

In Europe, it is possible to opt for more leisure while remaining within the full-time job market. People take their full holiday allowance, and maybe negotiate a longer period of unpaid leave on top. In the US, that is much harder, so the usual pattern is for people to leave their jobs, take some time off filling in with part-time work, and then maybe re-enter the job market at some later stage. (In Japan it is the wife who leaves the job when she gets married - the Japanese compensate for the long hours worked by men by having relatively few hours worked by women.)

Of the three patterns, it seems to me that the European model is the most satisfactory in that it best matches different individual preferences between work and leisure. Europeans who want more work (and money) and are prepared to sacrifice leisure can take second jobs, whereas Americans or Japanese who want more leisure probably have to step out of the job market. At least in the US there is a flexible demand for part-timers, whereas in Japan that is much tougher. There is a powerful argument for rebalancing the European tax system to reduce the tax wedge between employer and employee, in order to cut continental levels of unemployment. But the European holiday system works rather well.

But is it sustainable? Can we carry on with our long holidays when everywhere else in the world holidays are much shorter?

In theory, the answer is yes: provided we are prepared to accept a lower standard of living than people in North America and East Asia. If people in Europe took even longer holidays we would probably start to lose competitiveness, for you need an element of continuity, but there little chance of that. On the other hand, there is no evidence that the very short holidays in Japan improve the country's competitiveness, rather the reverse. Japan's offices (as opposed to its factories) are notoriously inefficient, with some people, who are not needed but cannot be made redundant, paid to do nothing, while others put in long hours also doing very little, simply to be seen at their desks. I suspect that in both the US and Japan holidays will tend to get longer, though I doubt that they will reach European levels.

There is, however, a difference between theory and practice. If European living standards fall materially below those of other developed regions in the world, including the "new" nations in East Asia, we may choose to cut down both spending and time on holidays in order to maintain the rest of our lifestyles. There would be fewer rich Europeans going to the beaches of Phuket for glamorous fortnights; more rich Asians coming here to play on our golf courses.

In any case, Europe faces a squeeze over the next generation - not just from competition from North America, Japan and the rest of East Asia. Even without that we would be hard-pressed from the change in our demography: more pensioners, and fewer workers to support them. Against that headwind it is going to be tough to maintain living standards, let alone increase them.

It is possible that we may look back on the Eighties and Nineties as a golden age, at least as far are holidays are concerned. Maybe in another 20 years, we will be back to three weeks holiday. More likely, though, there will be a blurring of the set holiday allowance. Instead of everyone getting the same deal, employers will offer their staff a choice between pay and time off. Some people will choose more work (and more pay) and take less time off; others will make the opposite choice.

This is a part of an even bigger change at the workplace. Everywhere firms are trying to do two things: match pay to performance, and fit work contracts to individual desires. A flexible holiday allowance is just one part of this seismic shift.

We are not all the same. Our long holidays have taught us something about the need for balance in our lives. At some stages of life, people need a lot of time to themselves; at others, they need the folding money. And the last thing we want to do is have the US or Japanese systems imposed on us.