Asickening amount of ignorance

Now that the nation has been saddled with a federal minimum-wage hike, political activists bent on improving the situation of America’s working poor are looking for a new legislative hobbyhorse. And many have found one in paid sick-leave laws—government mandates that require businesses to provide their employees with a set number of days off to use when they get sick or need to take care of a sick relative.

The major argument for sick-leave laws is essentially moral: As employers, we shouldn’t force people to choose between their health and their incomes. That sentiment finds its most emotive expression in the lofty proclamations of Naomi Nakamura, a prominent member of the coalition that successfully pushed for a sick-leave mandate—the first in the nation—in San Francisco: “Sick days are a human right and necessary in a caring, compassionate community.”

That sort of rhetoric resonates with a lot of people. But just like the minimum-wage camp’s cries for economic “justice,” it belies a dangerous ignorance of how our companies actually operate.

So here’s a helpful reminder that lawmakers looking to catch sick-leave fever should consider tattooing on their foreheads: When government tries to sweeten employee benefits through legislative fiat, the total compensation pie usually doesn’t get any bigger—it just gets divvied up differently.

That means the response to sick-leave laws will follow the same course used to respond to health care mandates, work-hour requirements and—of course—wage hikes: cut benefits elsewhere, hours, or eliminate jobs entirely.

So, at best, sick-leave legislation will just shift worker compensation from one form to another.

The worst—and more likely—outcome is that less skilled, low-income employees will feel the brunt of employer cost-cutting, leading to an increase in their already high levels of unemployment. (According to recently released figures from the federal Bureau of Labor Statistics, unemployment among high school dropouts is at its highest in a year. And African-American teen unemployment just hit 30%.)

Why is that? Because the less an employee is paid, the less room there is for employer cost-shifting with the total package. Based on publicly available data, it’s estimated that seven days of sick time would increase per-employee costs by up to 5% a year.

That sort of decision might seem coldly calculating to activists, but it’s important to consider the alternative. Most companies that employ a substantial number of entry-level workers run on exceedingly thin profit margins. That means even minor increases in per-employee costs can cause huge aggregate drops in profit. So in a lot of cases, if the business doesn’t lay off some people, everybody loses their jobs.

San Franciscans—as the only people in the country to have government-mandated sick-leave time—are already witnessing this phenomenon firsthand.

At a roundtable earlier this year sponsored by the San Francisco Chronicle, business leader Nate Valentine echoed a number of his colleagues when he said that “people are now looking to other cities to open new restaurants.” Same goes for Eric Rubin, who called the city’s business environment “onerous.”

Ironically enough, even one of sick-leave’s most vocal proponents recognizes its costs. ACORN, a union-affiliated activist organizing group, is a major advocate of a federal seven-day sick-leave bill. But ACORN’s own sick-leave policy only allows for five days for full-time workers. And even then, eligible employees must have “at least six months of seniority” and “work 30 hours or more a week on a regular and consistent basis.”

It’s high time that self-styled “employee advocates” learn that the law of unintended consequences won’t bend or break no matter how many good intentions they throw at it.