Sick Leave Doesn't Hurt Business, Says Business
President Barack Obama's push to mandate paid sick leave generates two types of pushback. The first is a philosophical question about how much government interference is appropriate in the workplace, which can't be answered with data.
The second type of resistance is different, because it revolves around the effects of such a law -- for businesses, workers and consumers. Here, the data matter a lot. And unlike a few years ago, when those practical effects could mostly just be guessed at, a lot more information has recently become available, as an increasing number of cities and states adopt laws mandating paid sick leave.
In three of those jurisdictions -- Connecticut, San Francisco and Seattle -- researchers have examined the impact of those laws by surveying businesses and, in some cases, workers about what happened once they took effect. The findings suggest that while the economic consequences of those laws shouldn't be ignored, they aren't terribly strong either. Here are the most common objections, and how they hold up against the data.
-- Mandatory paid sick leave hurts the bottom line. This is often the first concern raised: that adding unpaid hours of leave increases costs for business, mostly in terms of higher labor costs.
Survey data show that, at least from the perspective of businesses, that concern is justified -- but only for a minority of companies. Start with San Francisco, where 14 percent of businesses surveyed said the 2007 law mandating paid sick leave had harmed their profitability, including 23 percent of businesses with 10 to 24 workers. (Interestingly, just 12 percent of companies with fewer than 10 workers said the same.)
But the number of companies that said their bottom line suffered isn't the only test of business impact; just as significant is the magnitude of harm. That data is available for Connecticut: Of the businesses that said paid sick leave had increased their costs, almost two-thirds either said those increases were less than 2 percent or didn't know how much costs had increased. Only 1 in 5 businesses said costs had gone up 2 percent or more.
Some quick math suggests any cost increases associated with paid sick leave are likely to be small. The Connecticut law allows workers at covered companies to bank one hour of paid sick leave for every 40 hours worked, which is the equivalent of a 2.5 percent increase in hourly wages. (The proposal Obama supported is more generous to employees -- one hour of sick leave for every 30 worked, or a 3.3 percent increase.)
So for a Connecticut company whose wages make up half of all its costs, that's a total cost increase of 1.25 percent -- assuming every worker uses every available hour of sick leave. But that's not the case.
-- Mandatory paid sick leave will lead to widespread abuse. The argument here is that workers will take paid sick days whether they need them or not, treating them as vacation days by another name.
The survey data doesn't support that. Less than 14 percent of the Connecticut businesses surveyed reported instances in which their workers had abused the policy. In Seattle, 8 percent of businesses surveyed said they had reprimanded an employee for abuse.
Of course, abuse is a concern because it can be hard for employers to know when paid sick leave is used as intended. So a better gauge of abuse may be the share of workers who take paid sick time, and whether they take the maximum amount available. The data show not every worker used sick days, and those that did used less, on average, than the number available to them.
About two-thirds of workers at the Connecticut businesses surveyed used paid sick leave, even though each of those companies was subject to the new law. In San Francisco, 69 percent of workers took one or more paid sick days. In Seattle, three-quarters of businesses said at least one of their employees had used any leave. And in both Connecticut and San Francisco, the median number of sick days used was three -- less than the minimum five days available.
-- Mandatory paid sick leave will hurt workers by reducing wages or other benefits. This concern makes sense. In theory, employers will seek to keep their total compensation package constant, and so will respond to mandatory paid sick leave by reducing others forms of benefits. (For companies already paying the minimum wage, that cut might be seen in vacation time or bonuses.)
The survey data show some of that response, but not much. Just 1 percent of Connecticut businesses surveyed said they had cut wages because of the new law. That could reflect that Connecticut's law doesn't apply to employers with fewer than 50 workers, a larger exemption than other places with paid sick-leave laws. If large employers can more easily adapt to the law, that might explain why relatively fewer businesses in Connecticut reported changes to compensation.
In Seattle, where the law covers employers with five workers or more, 6.4 percent of businesses said they decreased pay raises or bonuses. In San Francisco, whose rules applies to employers of all sizes, the number was 7.1 percent; 2.8 percent said they cut vacation time. The survey data didn't include how much those wages, raises or bonuses were reduced.
-- Mandatory paid sick leave will hurt workers by cutting the number of employees or hours worked. About 11 percent of Connecticut businesses said they had reduced hours in response to cost increases from the sick-leave law. In San Francisco, 15 percent of workers reported either reduced hours or layoffs as a result of the policy.
The survey data from Seattle doesn't include responses about cutting hours, but less than 3 percent of businesses reported reducing their number of employees or moving employees out of the city.
-- Mandatory paid sick leave will hurt consumers by raising prices. The argument here is that increasing the cost of operation will force businesses to pass on that cost to customers. The counterargument is that the cost is so small, any such price increase will be hard to notice.
The survey data show that some businesses report increasing prices in response to laws that mandate paid sick leave -- about 1 in 6 businesses in Connecticut, 1 in 10 in San Francisco and 1 in 12 in Seattle. The data doesn't reveal the magnitude of those price increases, so it's hard to gauge the strength of the counterargument.
Two caveats apply here. First, the specifics of paid sick-leave laws vary, so the results in one jurisdiction don't necessarily predict what would happen nationwide with any great precision. Second, business owners can be unreliable witnesses to their own experiences, especially those that run small businesses and lack the resources to track their performance closely.
The overall picture nonetheless suggests that mandating paid sick leave has limited effect on businesses, workers and consumers. That doesn't solve the philosophical debate; it just shows that this is an argument about something bigger than economics.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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