Understand the Costs of Mandatory Paid Sick Leave

Sick leave mandates aren't the cost-free endeavors advocates make them out to be

March 4, 2013 RSS Feed Print

Michael Saltsman is the research director at Employment Policies Institute.

"Everybody benefits." That's what advocates of paid sick leave mandates told legislators, the media, and the public in places like Seattle, San Francisco, and Connecticut. It's a message that worked in these locales, and activists are now trying to build on their past success in other cities and states. The ultimate goal, however, is not a city or state sick day requirement but a federal one in the form of the Healthy Families Act. But before Congress follows Seattle, San Francisco, and Connecticut in search of a universal benefit from a new mandate, they'd do well to examine the evidence and see if one actually exists.

City and state campaigns for paid sick leave have been "local" in name only, with funding from national coordinating organizations and union-funded research outfits like the Institute for Women's Policy Research swooping in with reports that claim a mandate will save employers money. Federal policymakers got a taste of the group's tactics a few years back when the organization released a report on the Healthy Families Act titled "Valuing Good Health." In it, the organization claimed that businesses would save a whopping $28 billion collectively from a new mandate, mostly from reduced employee turnover.

[Read Ros DeLauro: A Lack of Paid Medical Leave Is Bad for Business]

There's just one problem: The estimated employer savings were based on a single study of data from 1987, years before any city or state had a sick leave law. Employers' actual experiences have been far different. A 2009 report by the Urban Institute revealed that, after San Francisco passed its own sick leave mandate, employers weren't experiencing the promised reductions in turnover. One business owner noted the obvious: If everyone is required to provide the benefit, there's no incentive to stay with one business over another. Moreover, nearly 30 percent of the lowest-paid employees reported layoffs or a reduction in hours following passage of San Francisco's sick leave law.

The largest scale experiment in paid sick leave so far started in January 2012, in the state of Connecticut. After agitating for a paid leave mandate since 2007, that state's activists exempted enough businesses and industries to neutralize opposition and get their bill signed into law. Reviewing labor market data from certain industries in the months since enactment, the bill's defenders have pointed to overall growth and declared their law a success.

But not so fast: A 2012 survey by the Employment Policies Institute of 86 Connecticut businesses affected by the law found that they'd taken various steps besides layoffs to adapt to costs. Thirty-one of these companies had scaled back on employee benefits or reduced paid leave to account for the cost of the new law; 12 had cut back employee hours, and another six reduced employee wages.

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Businesses also had other plans on the horizon: Thirty-eight businesses said they were likely to hire fewer people in the future. The same number said their employees would pay more for their health insurance. Thirty-five employers planned to offer fewer raises, and 32 planned to raise prices on their products.

The jury's still out on the final effect of sick leave mandates in states like Connecticut, but the weight of the evidence suggests that these mandates are not the cost-free endeavors that advocates make them out to be. If cities and states really are the laboratories of democracy, then Congress should learn from the consequences of these experiments, rather than blindly follow activists' demands for yet another national mandate.