Mandatory Paid Leave: A Remedy Worse Than the Disease

Original Article:

  • Author: Michael Saltsman

  • Publication Date: April 2013

  • Newspaper: Orange County Register

  • Topics: Paid Sick Leave

Last month, Portland, OR, became the fourth US city (after San Francisco, Washington, DC, and Seattle) to require employers to provide paid time off as a condition of doing business in the city. New York City is poised to become the fifth starting next year.

Now, Representative Rosa DeLauro (whose home state of Connecticut was the first in the country to require employers to provide this benefit) has teamed with Iowa Senator Tom Harkin to make this a national trend. Their newly re-introduced Healthy Families Act would grant most employees up to seven paid days off per year.

Proponents claims that “everybody benefits” from these mandates—employers, employees, and the general public. But a fair-minded look at the evidence from San Francisco and Connecticut suggests that these laws aren’t the cure-all that advocates claim they are.

The rationale behind paid leave mandates seems simple enough: Employees shouldn’t be going to work sick. The left-wing activist groups pushing these campaigns (as well as the labor unions and foundations writing  checks to finance them) view this as a compelling rationale for a new business mandate.

Yet the data suggest that businesses don’t need a reminder from the government to take care of their workforce. Three-quarters of private employees already have access to some form of paid time off. Those employers who can’t afford a paid policy (think: service sector businesses with low profit margins) provide schedule flexibility instead.

But the new costs created by a mandated time-off policy upset this status quo.  This isn’t just speculation: In San Francisco, for instance, one survey—conducted by a group that supported the mandate—found that nearly 30 percent of the lowest-paid employees experienced lay-offs or lost hours at their place of work following passage of the city’s paid leave law.

Not all employers adapted by cutting jobs: A report from the Urban Institute found that others had offset the cost by scaling back benefits like vacation time, or by cancelling employee bonuses.

Employers in Connecticut, responding to a statewide law, took a similar tack. A recently-released Employment Policies Institute survey of dozens of affected businesses found that some employers had reduced wages, benefits, and hours even prior to the law’s implementation. Looking forward, 38 of the businesses we spoke with said they would hire fewer people as a consequence of the law; similar numbers planned to offer fewer raises and increase the cost of other benefits, like health insurance. Roughly 70 percent of the businesses surveyed said the law was not good for business.

Of course, these results run contrary to the reports that paid leave advocates reference, which claim that the policy will actually save employers money. The Harkin-DeLauro bill, for instance, was estimated in a report by the labor-union funded Institute for Women’s Policy Research to save businesses as much as $28 billion. (The owners of these businesses are surely slapping themselves on the head wondering why they didn’t think of this themselves.)

In truth, the cost-savings supposedly associated with paid time off mandates are a myth. The vast majority of the estimated savings are based on a predicted decline in employee turnover following the law’s passage—a decline that hasn’t been borne out by actual experience. One employer in San Francisco pointed out the obvious: If all businesses are required to provide paid time off, there’s no incentive to stay with one over another and thus reduce turnover.

Insights like this are worth keeping in mind as Sen. Harkin and Rep. DeLauro tee off a national debate on paid leave. Sen. Harkin in particular has his sights set high, as he’s also promoting a separate bill to raise the federal minimum wage to $10.10 and link it to rise automatically with inflation.

His heart may be in the right place. But a mandated benefit that puts your income at risk is no benefit at all.

Saltsman is research director at the Employment Policies Institute