NCPA - National Center for Policy Analysis

Obama's Free Lunch Fallacy: Paid Sick Days Aren't Free Either

September 14, 2015

On Labor Day President Obama released an executive order that requires federal contractors to grant paid sick leave, and stated he would like to extend this benefit to 44 million workers that currently do not enjoy paid sick leave.

However, this proposal could raise the cost of employing workers and reduce the number of jobs available, says Devon Herrick, senior fellow at the National Center for Policy Analysis.  A study found that beneficiaries of mandated benefits are less likely to be hired and workers would pay the cost of mandatory benefits through lower wages.

Fringe benefits such as vacation days are a percentage of total compensation but they are not free, they simply allow workers to smooth their cash flow over a longer period of time. Likewise, funds for paid sick leave will have to come from downward adjustments to future pay.

Better options to mandatory sick pay are:

  • Allow workers decide how many sick days they need, and save for them in an account that can also be used for medical expenses.
  • Expand health savings accounts (HSAs) to help workers replace income lost due to illness.
  • Eliminate penalties for withdrawing funds from HSAs to replace lost income.
  • Deposit funds that give workers flexibility on how to use them and avoid the perverse incentives associated with "use-it-or-lose-it" paid sick days.

Congress should expand HSA eligibility to all workers, and allow their use to fund a wide variety of medical needs. After all, workers bear the cost of their fringe benefits, so it's a good idea to enable them to manage the trade-off between wages and income lost to sick days.

Source: Devon Herrick, "Obama's Free Lunch Fallacy: Paid Sick Days Aren't Free Either, Townhall, September 8, 2015.


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