“One of the great mistakes is to judge policies and programs by their intentions rather than their results,” said Milton Friedman. This is certainly true when considering government-mandated paid sick leave.
Connecticut learned that unintended consequences matter after it passed a mandatory paid sick leave law in 2011. And now Austin, which passed its own such ordinance in February, will learn the same thing. Adding to people’s hurt are efforts in Dallas and San Antonio, which are both considering replicating Austin, but the effort in Dallas was stopped in its tracks from too few verifiable signatures.
The lesson here is that mandatory paid sick leave lowers standards of living. This results from raising the cost of doing business, and that higher cost leads to fewer jobs and fewer raises, along with higher prices for consumers.
Here in Texas, Austin’s paid sick leave ordinance, and any others that follow, likely violates state law as outlined in the Texas Minimum Wage Act and it infringes upon the rights of businesses in Texas.
In order to assure this doesn’t happen, the Texas Public Policy Foundation represents the Texas Association of Business, the National Federation of Independent Business, and the American Staffing Association in filing a lawsuit against the city in April to stop this ordinance.
The ordinance would require businesses with more than 15 employees to offer 64 hours of paid sick leave per year or employers with 15 or fewer employees to offer 42 hours of it per year.
While there’s nothing inherently wrong with paid sick leave, there’s something wrong with the government intervening in the relationship between an employee and employer—and potentially violating state law in doing so.
What’s more, research in this area shows that mandatory paid sick leave ordinances don’t help employers or employees.
Take that Connecticut law. It applies to employers with more than 50 employees, excluding manufacturing firms and nationally chartered nonprofit organizations, which nearly 90 percent of employers already offered paid sick leave—before it was mandatory. While this reduced the negative effects of the Connecticut law, a survey of employers less than two years after the law went into effect found that, as expected, employers had already reduced worker wages or hours and raised consumer prices.
The Austin ordinance, which applies to all businesses, is far more draconian, meaning the effects would likely be much more costly. Government-mandated paid sick leave is bad, but Austin’s ordinance is far worse. The cities of Dallas and San Antonio simply shouldn’t be taking cues from Austin.
The opportunity costs associated with this policy must be taken into account.
If an Austin employer has five workers, would the added cost associated with paid sick leave discourage that employer from hiring an additional worker to increase output? It will certainly be a factor the employer takes into consideration when making decisions.
And because—like a minimum wage hike—paid sick leave is a cost that’s not associated with higher worker productivity or profitability, the employer will have no choice but to find ways to cover those costs. We know that usually ends up being lower wages, fewer jobs available, and higher prices.
And in that way, Austin’s paid sick leave policy will harm the local economy, because it works as an indirect tax on both employers and consumers.
The Bureau of Labor Statistics estimates that employers’ costs of benefits, such as paid leave and health insurance, are 30.5 percent of an employee’s compensation, with paid leave alone being only 7 percent. However, with states like Connecticut and cities like Austin mandating such leave, these costs could skyrocket, leaving even fewer dollars available for raises and jobs.
According to a Freedom Foundation report, more than one-third of businesses surveyed reported having difficulty with mandated paid sick leave. Also, most employers across the country voluntarily offer paid sick leave with the rate ranging from 50 to 89 percent even before a mandatory paid sick leave ordinance.
There’s no justifiable reason for the government to jump in when employers and employees have it worked out. Government mandated paid sick leave hurts economic freedom, and economic freedom is the foundation for greater economic prosperity.
Vance Ginn, Ph.D.