Markets, Not Mandates, Are the Way to Provide for Paid Leave

Carrie Lukas

5/9/2007 12:01:00 AM - Carrie Lukas

“This debate is really about what we value in this nation. If we want strong families and a strong economy, if we care about the health, well-being and economic security of our families, we will waste no time in passing the Healthy Families Act.”

That’s the case for requiring businesses with fifteen or more employees to provide seven days of paid sick leave, as articulated by Debra Ness, president of the liberal National Partnership for Women and Families, at a recent Senate hearing. Opposing this legislation means opposing cancer patients and single mothers with terminally ill children—at least that’s how the Left would like the debate over the creation of massive new federal mandates to unfold.

But you don’t need to be an economist to understand that the issue is more complicated than just whether you care about the sick. Such government regulations infringe on an individual’s right to freely contract for employment. These laws make it illegal to offer or accept a job that fails to provide this one specific form of compensation. That’s a loss of liberty for individuals. It makes our workplaces a little less flexible, and is another step away from the concept of the free market economy and toward greater government control.

The practical effect for employees is that there will be fewer jobs and lower pay. Mandates create new costs for employers, and that means less money for employees. Many workers will find that there is a direct trade-off between more benefits and more take-home pay. Benefits accounted for more than 30 percent of the average worker’s total compensation in 2006. A new mandate like paid leave means that this portion will grow, leaving less money in the average worker’s pocket to spend or save as he sees fit.

The increased cost of hiring a worker also gives employers another reason to cut down on staff and look for opportunities to outsource jobs, so they don’t have to pay to administer and implement these costly benefits.

Policymakers have better options if they want to help individuals who need time off from their jobs due to illness or other personal circumstances. First, it’s important to recognize that most businesses are already providing paid leave benefits and finding other ways to help their workers address their personal needs.

According to the Department of Labor, in 2006, 82 percent of American workers in the private sector had access to some sort of paid leave, whether sick leave, vacation, or personal leave. Many businesses are also choosing to offer employees greater flexibility with their work hours and arrangements. As of May 2004, 27 percent of full-time wage and salary workers had arrangements that allowed them to vary their work start and end times. More than four million Americans telecommute most days and an estimated twenty million telecommute at least once a month. This flexibility provides employees with many advantages, including great ability to care for personal and family needs. Businesses competing to attract employees find that it makes business sense to offer such arrangements. That’s how it works in a dynamic market economy.

In addition to relying on the competitive marketplace, policymakers should look at ways to make it easier for individuals to provide for themselves during periods when they cannot work. A first step would be to eliminate disincentives for private savings in our tax code to encourage individuals to put money away to provide for themselves in times of need. The government has created tax advantaged accounts for retirement, for educational expenses, and for healthcare costs. Similar efforts could be made to encourage individuals to save to provide for periods of leave. Workers could be allowed to put a few thousand pre-tax dollars per year into a “Paid Leave” savings account, which could be accessed without penalty when they have to take unpaid (or partially paid) leave due to illness or the birth of a child.

Such proposals won’t provide the kind of sympathetic stories that appeal to the media or make for tear-jerking congressional testimony, but they will make it easier for individuals to provide for themselves when they are unable to work. Government mandates may sound like compassion, but they impose real costs on employers and ultimately on the employees they are intended to help.