Free Markets and Swine Flu

In a free market, companies should be allowed to decide whether or not to offer paid sick leave to employees. At the margin, employees who value paid sick leave will flow to companies that offer it and employees that don’t won’t; also at the margin, companies that offer paid sick leave will be able to pay their employees a little less in other forms of compensation. Everything works out for the best.

Unfortunately, not offering paid sick leave creates a classic externality: People go to work even when they’re sick, infecting their co-workers (or customers); employers internalize some of that cost (co-workers), but not all of it (co-workers going home and infecting their kids, who then go to school — because their parents can’t stay home to take care of them — and infect their classmates, etc.). I’ve written before that we are far behind the rest of the developed world in requiring paid sick leave.

Now is when it will hurt us. The New York Times has an article today titled “Fears That Lack of Paid Sick Days May Worsen Flu Pandemic.” (Economix has related data on who gets paid sick leave — public sector workers, people at big companies, and the highly-paid.) I’m not sure why they decided to throw in the word “may.” We know that at the margin some people with H1N1 are going to work when they shouldn’t. We know that H1N1 is highly contagious (5.7 million Americans affected so far). We may not know how many more people are getting H1N1 because of our non-policy on paid sick leave, but it can’t be zero.

Of course, you can count on the business lobby to deny that there is a problem:

“‘The vast majority of employers provide paid leave of some sort,’ said Randel K. Johnson, senior vice president for labor at the United States Chamber of Commerce. ‘The problem is not nearly as great as some people say. Lots of employers work these things out on an ad hoc basis with their employees.’

“According to the Bureau of Labor Statistics, 39 percent of private-sector workers do not receive paid sick leave.”

Vast majority?

There’s another dimension to this, too. Economix says this: “In both the private and the public sector, low-wage workers are far less likely to receive paid sick leave than high-income workers, touching off fears that front-line workers at fast-food restaurants or child care centers might be spreading their illnesses.”

That’s an interesting interpretation: the problem is that readers of Economix, who presumably do not work in fast food restaurants or day care centers, might catch H1N1 from a fast-food worker or their child’s day care provider. No, it isn’t. The problem is that our non-policy hurts the poor. Rich people can stay home when they are sick or when their children are sick, which means the rate of transmission in rich communities will be lower. Poor people can’t, so the rate of transmission in poor communities will be higher. This is obviously a simplification; there are poor people with paid sick leave, and rich people without it (many small business owners, for example). There are also communities that include rich and poor people. But in the absence of public policy not only do we have a negative externality, we have one that disproportionately affects the poor.

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About James Kwak 133 Articles

James Kwak is a former McKinsey consultant, a co-founder of Guidewire Software, and currently a student at the Yale Law School. He is a co-founder of The Baseline Scenario.

Visit: The Baseline Scenario

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