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Bad Economics Meet Paid Sick Days in Philadelphia

by Robert Drago

A new study for the National Federation of Independent Businesses (NFIB) estimates that Philadelphia’s proposed paid sick days legislation would cost employers between $350 million and $752 million annually. Both the factual basis and the assumptions underlying this study are seriously flawed.

The totals derive from two presumed costs: the amount for new paid sick days coverage, estimated at between 34 and 42 cents per worker hour in direct labor costs, and 38 cents per worker hour in compliance costs for employees who already have paid sick days.

Consider the new paid sick days coverage. The NFIB study assumes workers will use all of the days allowed—9 days annually for larger employers, 5 days annually for small employers. Their figures imply an estimated overall average of 8.35 days per year. However, from a recent, random sample of employees in San Francisco, which has had similar requirements since 2007, the average employee uses 3 days per year. This estimate agrees well with IWPR analysis of national data from the National Health Interview Survey (3.1 days used on average). Given the fact that workers use only 3 days per year, new sick days costs are overestimated by 64 percent in the NFIB study. The actual hourly cost range, using NFIB’s methods, is thus about 12 to 15 cents per hour.

The second source of costs is compliance expenses for employers who already offer paid sick days. Although it is not known exactly how many days most employers in Philadelphia offer at present, the Bureau of Labor Statistics estimates that the national average is 8 days per year for private-sector employees with one year of job tenure. It seems reasonable to assume that employees in Philadelphia with access to paid sick time use around 3 days per year, as do workers in San Francisco. These statistics suggest that there is likely to be little or no additional paid sick days use by employees who already have access to paid sick days. While there might be some start-up costs to bring company policies in compliance with the law, these will be a one-time cost.

The NFIB, however, claims the annual compliance costs will be 38 cents per hour for employers that already provide paid sick days. At that rate, an employer would be hiring one full-time employee at $15 per hour to track paid sick days for every 40 current full-time employees (the result of dividing $15 by 38 cents). An hour per week per employee to track sick time use seems like a serious overstatement. If the task of monitoring sick days use after passage of the proposed law took one extra hour per week per 40 employees (who already had paid sick days before the law was passed), a more realistic estimate, compliance costs would fall to about one cent per hour.

Using the NFIB’s own methods, with known facts and more reasonable assumptions, the hourly costs for new coverage drop to 12 to 15 cents per hour, and the costs of compliance for employers already providing paid sick days drop to one cent per hour. This suggests a far lower cost for implementation of the law than the NFIB study states, especially for businesses that already provide employees with paid sick days or an equivalent benefit.

It is almost enough to give one pause over the objectivity of the entire NFIB study.

Robert Drago is the Director of Research at the Institute for Women’s Policy Research.

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