More Government Regulations Is the Wrong Prescription for Connecticut's Sick Economy

Carrie Lukas

5/17/2011 12:01:00 AM - Carrie Lukas

Hopeful politicians describe the current economic climate as a “recovery,” but it sure doesn't feel like one for too many Americans.

Take what's happened in Connecticut. While the national unemployment rate dropped nearly a point last year (although sadly much of this decline was driven by people exiting the workforce, rather than finding jobs), Connecticut didn't even have this sliver of good news. The Nutmeg State’s unemployment rate was at a ten-year high at 9.2 percent last March, and it was still at 9.1 percent this March (the most recent month available).

So what are Connecticut lawmakers proposing to do to facilitate private sector job creation? Some are pushing for new employment mandates for business, which would make it even more expensive to hire workers. Governor Dannel P. Malloy, for example, supports legislation that would require all businesses with more than 50 workers to provide an hour of paid sick leave for every 40 hours worked, with a maximum of 40 total paid hours or five days off.

Most politicians see mandatory sick leave as a big winner with voters. After all, who wants to oppose giving someone time off to care for a sick child or to recover from illnesses? The vast majority of businesses surely don’t. That’s why most already provide leave without a government mandate.

According to the Department of Labor, in 2006, more than four in five private sector workers had access to some sort of paid leave.

But what about those companies that aren't offering this benefit? Proponents of government leave mandates say workers in those companies would benefit if a new rule passed. But this logic ignores the unintended consequence of such a mandate, specifically the new costs that businesses would incur, which would most likely be passed on to workers in terms of lower take home pay. Benefits already accounted for more than 30 percent of the average worker's total compensation in 2006. A paid leave mandate would push more compensation into benefits, leaving less money in workers' pockets as take-home pay.

Besides the basic cost of this new benefit, a new mandate would also increase administrative costs for businesses. Companies would have another reason to cut down on staff and look for opportunities to outsource jobs.

Some argue that those costs aren't real, and that in fact such a mandate will be good for company profits. But proponents also often argue that, absent a mandate, companies will engage in a “race to the bottom” and cut workers’ benefits. But if sick-leave benefits really boost companies’ profits, why should we worry about employers needlessly cutting benefits? Are business owners really going to race toward their own extinction?

Paid sick leave likely makes business sense for most companies—which is why the overwhelming majority already provide this benefit. But we need to carefully examine what the implication of a new sick-leave mandate would be for those companies that don’t already provide paid leave.

Do politicians like Governor Malloy really presume to know best how each and every business should structure employment compensation packages for their workers? Can they really guarantee that this new mandate won’t force struggling businesses to find other ways to trim costs, like firing workers? Can they ensure that the same workers who they are trying to protect won’t face the much harsher outcome of unemployment as a result of their government activism?

In the end, the debate about the paid-sick leave mandate is really about who should be in control of the decisions that businesses make. Who should decide how to structure compensation packages: government officials or employers and workers?

Governor Malloy and his allies in the Connecticut state legislature likely think they are being compassionate by trying to make it illegal for certain employers to offer jobs that do not provide paid time off. But since the end result may be higher unemployment and fewer new job opportunities across the state, this is compassion that Connecticut’s 170,000 unemployed workers can do without.