The Adverse Unintended Consequences of Paid Sick Leave

Back in 2008, the soon-to-be Chief of Staff for President Obama infamously stated that, “You never want a serious crisis to go to waste.”

Sure enough, the Obama Administration – elected in the aftermath of the financial crisis – quickly rammed through a so-called stimulus, followed by Obamacare and Dodd-Frank.

Now it’s happening again. Politicians are trying to exploit the coronavirus by pushing a proposal to expand government by enacting paid sick leave.

Veronique de Rugy and Don Boudreaux of George Mason University’s Mercatus Center explain the downsides of such a new mandate in National Review.

It’s one thing to support temporary provision of sick leave paid for by the government when we face a public-health crisis. …But it would be deeply misguided to use COVID-19 as an excuse for a permanent policy change. …If Congress rushes through a universal paid-leave plan, …many employers will reduce their privately supplied coverage in response. Such crowding-out is what has already happened in states where paid-family-leave programs were adopted, with many companies…now requiring employees to first tap all the available taxpayer-provided benefits, which in turn has produced larger-than-expected budgetary costs for state governments. …Obliging companies to permanently provide paid sick leave to workers who don’t currently have it would impose eventual reductions on their take-home pay. The provision of such benefits isn’t costless. We can be sure that in the long run — after the coronavirus fades from the headlines — mandated paid leave would inflict a pricey and permanent toll on workers who would prefer to receive more of their compensation as take-home pay and less as paid leave. …This negative effect would exist even if leave benefits were paid for through the government and financed with a payroll tax split between employers and employees, as they would be in the Family and Medical Insurance Leave (FAMILY) Act also proposed by DeLauro and Murray… Unfortunately, the requirement that part of the tax be paid by employers is a legalistic formality: Economics dictates that the cost of this part of the tax, too, will over time fall on workers in the form of lower wages. …coronavirus is a serious problem… We must not further enfeeble American workers by using it as an excuse to enact permanent government mandates and entitlements that risk unleashing unintended negative consequences.

Here are some excerpts from a Wall Street Journal column on the same topic from Aaron Yelowitz and Michael Saltsman.

Democrats in Congress have a cure for the coronavirus crisis: a nationwide paid sick-leave mandate. …Ms. Murray and Ms. DeLauro began advocating such a policy in 2004 and have clearly internalized Rahm Emanuel’s immortal political advice that “you never want a serious crisis to go to waste.” …San Francisco was the first locality to require paid sick leave, starting in 2007. The law brought modest benefits and significant costs. A 2011 study by the Institute for Women’s Policy Research found nearly 30% of the lowest-wage earners reported layoffs or reduced hours… Connecticut’s sick-leave policy was the focus of a 2016 study…, which found a “sizeable decrease in labor demand” as a consequence of the mandate. …The coronavirus’s domestic arrival in these two states complicates Ms. Murray’s promise that a paid-leave mandate could “prevent” its spread. …Why didn’t paid-leave regimes in California and Washington prevent the spread of the disease, as Ms. Murray imagines? According to Johns Hopkins researchers, it takes five days on average for coronavirus symptoms to present. …The relative benefits and consequences of paid sick leave must be considered carefully. Using a pandemic to justify its swift enactment would result in ineffective policy that may hurt the workers it’s meant to help.

The bottom line, as I’ve explained before, is that employers don’t create jobs out of a sense of charity.

They hire workers because of an expectation that the revenue generated by those people will exceed the cost of employing them.

So when politicians enact laws to create new goodies, there will be “unintended consequences” that are bad for workers.

They’ll get less take-home pay, either because of higher taxes or higher costs (a point inadvertently acknowledged by a columnist for the New York Times).

Sadly, I don’t expect economic arguments to have much impact on vote-seeking politicians. Especially when they can exploit a crisis.

Which is a sad pattern in American history, as documented by Robert Higgs in his classic book, Crisis and Leviathan.

It’s what they did during the Great Depression. It’s what they did after 9-11. It’s what they did after the financial crisis. It’s what they’re doing today.