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According to Wiki:

A thirteenth salary, or end-of-year bonus, is an extra payment given to employees at the end of December. Although the amount of the payment depends on a number of factors, it usually matches an employee's monthly salary and can be paid in one or more installments (depending on country).

But why do governments officially mandate this in some countries? How is this system better than simply paying out an equal amount each month?

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  • I don't know the details, but in countries in which it is mandatory, it's basically a forced loan from the employee to the firm, in the guise of a "bonus". (I didn't DV by the way.) – Fizz Dec 15 '20 at 2:43
  • @Fizz so the government is trying to help companies by using this mechanism? – JonathanReez Dec 15 '20 at 2:45
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    In the USSR it was ostensibly introduced "to increase the workers' incentive" – Fizz Dec 15 '20 at 3:11
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    Strangely enough, I can't find any economics papers on this. Maybe I'm searching for the wrong term... – Fizz Dec 15 '20 at 3:24
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    In the USSR, at least in the 1970s, it was actually tied to meeting the yearly quota of production, so not really guaranteed. (ref The Soviet Worker, p. 82). So I guess the guaranteed thing originated elsewhere. – Fizz Dec 15 '20 at 4:23
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Sometimes, it is just a weird accounting practice.

Here it Germany, it is common for union-negotiated salaries to include one or two extra sums, for Christmas and possibly for the summer vacation. These are not performance bonuses, they just mean an uneven distribution of the total payment across the year.

At times, the lump sum had to be repaid proportionally if the employee resigned before next spring.

Why? Tradition!

For centuries, employers would give employees gifts for Christmas. In the mid 20th century, unions demanded to "regularize" the practice and to make it more predictable and fair, so those payments went into the union salary agreement.

There is some paternalism in the practice, the assumption that the poor dumb proletariat cannot be expected to manage their finances over the year and set money back for year-end celebrations and skiing vacations.

Not all employees get these non-discretionary payments. It depends on the strength of the union (stronger unions can get them) and the strength or weakness of the employee (individuals who negotiate for themselves tend to bargain either over the annual total, and not worry about 12 or 13 or 14 parts, or over the the hourly rate, and not worry about months or years).

Why is it better?

As mentioned, the extra payments are timed just before the summer and winter vacation seasons. It is really convenient to do a monthly household budget and to treat those extras as vacation funds. But not everybody can afford an expensive vacation, and not everybody goes at the same time.

And the government?

There are cases where the German government can declare a wage agreement between unions and employers' associations to be allgemeinverbindlich, generally binding. This can happen to "avoid economic mis-developments" or when an overwhelming number of employers has agreed and just a few "black sheep" remain.

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    In Austria, these payments are not mandated by the government, but there is a strong incentive in the form of lower taxes on them. Pretty much every company therefore pays 14 salaries per year, two of which are taxed significantly less than the others. I'm not sure how much of the economic peak before christmas is due to this added liquidity, but intuitively (dangerous in economics, I know) I certainly expect this to reinforce it. – Hulk Dec 15 '20 at 8:09
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    Also from 1951-1988, Germany apparently provided certain tax deductions for Christmas bonuses: servat.unibe.ch/dfr/bv096001.html#Rn002 But that's probably a recognition of the tradition as well. – zhantongz Dec 15 '20 at 11:57
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    With regards to paternalism you should keep in mind that in the time this tradition dates back to, most ordinary people did not have a bank account, and salaries were generally paid weekly in cash. So workers might as well have seen these holiday payments as a benefit, as it allows them to save money for christmas without the risk of having large amounts of cash around for long times. – mlk Dec 15 '20 at 13:10
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    @Aganju, after the first payment cycle the difference between December 31st and January 1st is one day. And in many wage agreements require a certain waiting time before one qualifies, so early payment means some fail through the cracks. – o.m. Dec 15 '20 at 15:11
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    In Argentina we blame it to a cultural thing/hack. Since we are not that good at managing resources, the 13th salary is split in two halves - one for winter holidays, the other one for Christmas (on summer, in the southern hemisphere). Like paying weekly instead of monthly if you assume people will spill it if it's on a single payment. – mgarciaisaia Dec 15 '20 at 20:49
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Another aspect for companies to do so is worker retention. In many places, you'd only get the full 13th salary, if you've been with the company for the whole preceding year. If you started later, you'll get proportionately less, but more importantly, if you quit before the bonus is due, you'll get nothing.

Additionally, some contracts may have clauses, where the company can skip paying the bonus in bad years, which is legally much easier than reducing salaries, but that seems to have become exceedingly rare.

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    I can only assume that it encourages downsizing/layoffs timed to happen before the holidays, so you can get the most work without paying the bonus. – user3067860 Dec 15 '20 at 14:44
  • That part makes sense, but why mandate it by law? – JonathanReez Dec 15 '20 at 15:18
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    @user3067860 It seems to be more common in countries with strong unions/labour laws, where this simply is not an option. It also would be trivial to restrict the forfeited bonus to the employee quitting. – mlk Dec 15 '20 at 15:49
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I have companies in VietNam and do business in China.

The year has 52 weeks, which is 13 periods of 4 weeks. Nice and 'square'.

The working year is 12 consecutive 'months' with the 13th 'month' considered a 'month' of 'vacation' where many people return from their work city to their ancestral homes. Companies make this 13th-month payment at the end of the 12th-month so people can travel home with sufficient funds for family celebrations.

Complicating this is the Lunar year, which is observed in China, Hong Kong, Japan, Mongolia, Singapore, South Korea, Taiwan, Tibet and Vietnam as well as most countries in the East Asian and Southeast Asian region. Christmas is not a holiday in these countries.

It is also common for employees to terminate their employment by giving notice in the 13th month (AFTER receiving their payment) and for employers to inquire whether employees will return after the break.

In China, and Chinese countries it is called Chinese New Year; in Japan it is Ryukyu; in the Koreas it is Seollal; in Mongolia it's Tsagaan Sar; Tibet calls it Losar and VietNam it is Tết.

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    But why mandate it on the government level? – JonathanReez Dec 15 '20 at 23:33
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    "The year has 52 weeks, which is 13 periods of 4 weeks. Nice and 'square'." Except, of course, that a year is longer than 52 weeks. – NPSF3000 Dec 16 '20 at 0:53
  • @NPSF3000, well, that's just one or two days off, you simply have to adjust for that, like for examples in the many proposals for perennial calendars (en.wikipedia.org/wiki/Perennial_calendar) – Francesco Marchetti-Stasi Dec 16 '20 at 13:19
  • (Please note that I'm not in favour of perpetual calendars, I would hate to see my birthday always fall on Wednesday–I just wanted to note that seven times 52 is just one or two days off the length of a year, so it really makes little difference...) – Francesco Marchetti-Stasi Dec 16 '20 at 13:23

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