Government Mandated Sick Pay Will Give Us All the Flu

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As the flu sends thousands of Americans to bed with aches and chills, a chorus is rising to force employers to offer paid sick leave to all workers. This should not be surprising to anyone who has been following the growing trend of mandating employers to pay the cost of a growing list of social engineering schemes deemed worthy by some group looking for a handout.

It is now normal to simply claim that people have a right to something, or that it makes the world fairer, and then move on to expecting other people to pay for it. Unfortunately, this completely misunderstands how business works and also has unseen distributional impacts on people who probably don't even realize it.

Last week the Associated Press did a "news story" pushing the agenda for universal paid sick leave. After all, if those nasty employers would just pay people even when they were not working then the sick people could stay home and wouldn't infect the rest of us. That would seem to benefit society. Clearly, the right to be paid when home sick (and not working) should be recognized and employers should bear the cost of implementing such a policy. Sick people would be better off, people who wouldn't get sick would be better off. The only people who would lose are employers (the evil rich). Unfortunately, the ideas in the above paragraph are all wrong.

Employers do not hire people in order to promote social justice or to be nice. Employers hire a person when they believe the person will earn their company more than what they will pay the person. If profit will not increase as a result of that employee, they will not become an employee. Pay is based on worth and deviations from that will be corrected by the market. Employers who overpay will be run out of business by those who don't (and, therefore, can sell for a lower price), just as those who try to underpay workers will lose the workers to other businesses who pay fairly.

In the long-run, pay is determined by market value, not social activism.

What that means is that employers cannot and will not pay for sick leave. Instead, they will just lower the hourly pay to adjust for the expected hours of sick leave they will now have to pay. That is, you may think you have a job with paid sick leave (or paid vacation days), but really you are slightly underpaid for all the hours you actually work. Then when you are on sick leave or vacation, your employer pays you the money you already earned, but were not paid, during the time you were working.

That means that a worker with paid sick leave gets paid the same actual hourly wage as a worker without sick leave if they are sick the same number of days. On average, workers with "paid" sick leave are not getting a free lunch from their employers. They are just receiving their pay partly in pay-for-work and partly in paid time off.

Given the way free markets work, requiring all employers to provide sick leave will not add a new benefit to people's job, but rather will lead to a decline in the stated hourly wage for jobs currently without such benefits to restore the pay to the market value of that labor. Again, in the long-run pay is determined by market value, not social activism.

That means that a law forcing all jobs to come with paid sick leave would have an unintended consequence. Since average hourly wages are lower to compensate for the extra compensation in paid time off, healthy people will suffer under such a law while those who get sick more often may come out ahead. The activists pushing for mandatory paid sick leave think it will be a transfer of wealth from employers to employees. But the dirty little secret is that such a law will really cause a wealth transfer from healthy people to sick people.

This situation of social engineering designed to accomplish income redistribution from richer to poorer but instead redistributing from favored to unfavored group is quite common. In this case, the favored group is people who get sick frequently, while the healthy are the unfavored group forced to pay for a new benefit.

Obamacare also redistributes money from healthy to sick as well as providing gains for those with preexisting conditions (even if now healthy) and families with young adult children unable to afford their own individual insurance. The government program to pass out free cell phones to low income people redistributes money from everybody who pays for their phone service to those receiving the free phones (using a fee on phone bills to redistribute the money).

All this social engineering sounds wonderful on the surface if one doesn't think too carefully about it. However, after reflection, one finds that the policies often hurt unintended victims in order to bestow unearned benefits upon some chosen group. Support for such social policies is usually drummed up by portraying the benefits as either free (just magically appearing out of thin air) or being paid for by the rich (who, we are told, can afford it). Unfortunately, these statements are usually lies and the costs are generally borne by ordinary Americans through higher costs.

The social engineering advocates hope nobody notices these hidden costs or who actually pays for them, but we should all pay attention. Good current estimates are that at least two-thirds of federal government spending is now income redistribution. There are at least seventy-seven different federal welfare programs explicitly redistributing income, sometimes with the additional goal of social engineering. I like to call these programs free lunches (and wrote a book about their proliferation), even though somebody always gets stuck with the bill.

What the social engineers hope you do not notice is that the total cost of all these programs, adding in state and local government programs and all those free lunches imposed through regulation without direct government spending, is now well over $3 trillion per year or more than 20% of the total national income. This is key, because the "evil rich," the top 1%, only earn about 17% of all the income. That means even if we confiscated all their income, it would not pay for all these redistribution schemes. The inevitable conclusion is that the middle class (and often the working poor) must be paying a large share of these bills.

So next time somebody suggests a new free lunch, make sure you understand who will pay for the "free" lunch before you decide whether to support the proposal.

Jeffrey Dorfman is a professor of economics at the University of Georgia, and the author of the e-book, Ending the Era of the Free Lunch

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