Labor Market Effects of US Sick Pay Mandates

The US, Canada and Japan are the only industrialized countries that do not provide universal access to paid sick leave, which is largely provided as a fringe benefit by employers on a voluntary basis (Heymann et al. 2009). Coverage rates among full-time workers are around 65%; low-income, part-time and service sector workers have coverage rates of less than 20% (Lovell, 2003; Boots et al., 2009; Susser and Ziebarth, 2016). In addition to concerns concerning inequality, worker well-being, and productivity, a lack of sick leave coverage can induce contagious employees to work sick and spread diseases (Pichler and Ziebarth 2017).

The main source of controversy related to government mandated sick leave is the possibility that such policy could hurt employment or wage growth. The standard economics textbook example of mandated benefits argues (Summers 1989): Employer mandates may be more efficient than a direct provision of benefits by the government (funded by higher taxes), as long as employees value the benefit and would accept lower wages in return. The case of mandated sick leave benefits may also deviate from the textbook example. When employees earn one hour of paid sick leave per 30 hours worked---assuming that wages could freely adjust and ignoring administrative costs---this would equal a wage increase of 1/30 or 3.3% per week for full-time employees. However, this static calculation assumes that all employees would fully exhaust their annual sick leave credit and would have worked sick with full productivity (or taken unpaid leave) in the counterfactual scenario.

This paper empirically assesses how wages and employment have been affected by the implementation of nine city-wide and four state-wide sick pay mandates. We generate two datasets from the Quarterly Census of Employment and Wages (QCEW). The QCEW covers 97% of non-farm employment in the US and are provided by establishment size and industry. Econometrically, we exploit the quasi-random nature of the implementation of the sick pay mandates across US regions and over time. To mimic pre-treatment trends as closely as possible, we build synthetic control groups using the rich set of untreated regional units available. We also estimate traditional Difference-in-Differences models and estimate effects just for the construction and hospitality industry.

Our findings do not provide much evidence that either wages or employment significantly and systematically increased or decreased post-reform. The point estimates for private sector employment as a share of the total county population have ambiguous signs and are relatively small in size. Joint tests for all nine treated cities let us exclude with 92% statistical probability that employment decreased by more than 1%. The city joint tests for wages let us exclude with 99% statistical probability that wages decreased by more than 1%. Moreover, when evaluating the four states, joint tests yield tiny non-significant employment estimates of 0.1%. The non-significant point estimates for wage dynamics are even positive and we can conclude with more than 99% statistical accuracy that wages did not decrease by more than 1% (if at all).