Mandated Sick Pay: Coverage, Utilization, and Welfare Effects

Overview

The United States is one of three OECD countries that does not provide universal access to paid sick leave for all employees. Traditionally, U.S. employers have voluntarily provided paid leave, resulting in substantial inequality in coverage across jobs. Over the past years, just 12 states (including Arizona, California, Connecticut, Massachusetts, and Oregon) have passed sick pay mandates.

In a new working paper, P4A researcher Nicolas R. Ziebarth of Cornell University and colleagues Catherine Maclean of Temple University as well as Stefan Pichler of ETH Zurich provide first-of-its-kind evidence on how state-level sick pay mandates affect coverage rates, sick leave utilization, and labor costs.

Findings

The research team used the National Compensation Survey from the Bureau of Labor Statistics from 2009 to 2017 to compare states that passed sick leave laws to those that did not. Their findings show that sick pay mandates are effective in increasing access to paid sick leave:

• Coverage rates increase by 13 percentage points from a baseline level of 66 percent during the first years after the mandates were implemented.
• Employees take more paid (and unpaid) sick leave (about two additional days per newly covered employee and year.)
• Sick leave costs increase for employers who have to provide mandated sick leave, by about 21 cents per hour worked.
• There is no evidence that employers decrease other benefits such as paid vacation time or paid family leave.

A theoretical model of optimal sick leave shows that employees who gain access to sick leave because of the mandates must value this benefit more than it costs employers to provide it (when wages are rigid and cannot decrease). In addition, the effect of the mandates on employee productivity must be considered in welfare calculations.

Implications for Policy and Practice

Opinion polls suggest that a large bipartisan majority supports sick pay mandates. Moreover, recent legislation to provide emergency paid sick leave to employees who have COVID-19, suggests that policymakers may be interested in enacting more comprehensive policies.

Mandates that enable employees to earn one hour of individualized sick leave credit per 30-40 hours worked are an effective tool to increase access to sick leave among U.S. employees. In the first years after the mandates’ implementation, employees who gain access to paid sick leave take about two days of paid sick leave per year, which costs employers only 21 cents per hour worked. This research suggests that mandating paid sick leave improves the welfare of U.S. workers, at a low cost to employers.

Together with companion research showing that flu rates decrease as a result of the mandates and that neither employment or wages significantly decrease in labor markets with mandates, this finding suggests that the mandates can be an effective tool to increase population health and worker well-being.