In his State of the Union speech, the president emphasized the plight of 43 million American workers whose employee benefits do not include paid sick leave. Presumably, many of them feel they cannot afford to take a sick day to convalesce after an illness or to care for a sick child. However, the President’s solution was a bad one: he proposed to force employers to provide up to seven days of paid sick leave to workers (and their families) annually. Imposing another costly employer mandate is a bad idea. Instead, the president should have proposed expanding health savings accounts (HSAs), allowing workers to replace income lost to sick days (more on this further down).
Bad Idea: Mandating Sick Pay. To some, mandating paid sick days may sound benevolent, but it would hurt the people it’s intended to help. One problem with the president’s proposal is that it’s unrealistically generous. Of the 100 million jobs that provide some paid sick leave, most likely don’t provide seven days annually. Obama also appears ignorant of the fact that his own health adviser, Jonathan Gruber, published academic research back in the 1990s showing workers themselves wind up paying the cost of mandatory benefits through lower wages. Thus, if employers are forced to provide seven paid sick days for each worker every year, employers will adjust workers’ pay downward to compensate for the cost. This would inhibit pay raises, and it would impact paid vacation days.
What Gruber and other economists have found is that fringe (and mandatory) benefits are just one portion of total compensation. In other words, many workers willingly forgo higher cash wages in return for other types of employee benefits. For instance, many workers prefer to spread 50 weeks of pay over the 52 week year to allow them to take 10 vacation days and still receive a paycheck for the two weeks they take off work. Paid vacation days are not free; they are merely a way to smooth cash flow. Paid sick leave is similar.