May 8 2008
For the nation's capital, it's one step forward, another step back. D.C. has long been recognized as one of the nation's least friendly business climates, but in recent years, officials have attempted to lure employers into the city limits. The results can be seen around the city. The latest evidence is Columbia Heights's D.C. USA shopping complex, which features prominent retailing chains such as Target, Bed, Bath & Beyond, and Best Buy. These businesses not only bring new shopping opportunities to the neighborhood, but an estimated 1,200 new jobs, more than half of which will be filled by D.C. residents.
Yet while area residents were celebrating the opening of this new consumer paradise, the D.C. Council was busy discouraging other businesses from following D.C. USA's lead. In March, the D.C. Council passed and the Mayor signed the Accrued Sick and Safe Leave Act, legislation to force employers to provide workers paid sick leave. Businesses with twenty-four or fewer employees will have to provide three days of paid sick leave, while those with more than one hundred employees will have to offer seven days.
Most people naturally respond to this news by cheering the D.C. government: after all, who doesn't recognize the need for workers to take time off due to illness? The problem with this reaction, however, is that it focuses solely on the recipients of the new benefit without considering the other side of the ledger: those who bear the costs and suffer from the mandate's unintended consequences.
Consider what happens to a business if an employee uses paid leave. The job that person was hired to perform will go undone, another employee will have to pick up the slack, or the business will have to hire a temporary replacement worker. In any case, the employer's costs will go up or productivity will go down. Smaller businesses, which tend to be more financially vulnerable than larger ones, are particularly affected. Large employers may shift work with relative ease, but a store with a handful of employees often cannot function when one worker doesn't show up. The owner will have to hire a replacement while still paying the leave taker's salary. Those additional costs will have to be made up for somewhere: prices may rise for consumers or perhaps employees will receive lower pay.
Many advocates of these types of mandates also lament stagnating wages. Yet mandated benefits contribute to slow growth in wages since they raise the total cost of employment. As of 2006, more than 30 percent of the average worker's total compensation was paid as benefits.
Some workers may like this arrangement: they're happy to receive such a large portion of their compensation as benefits. But undoubtedly others would prefer to trade those benefits for more money. The problem is once government issues these kinds of regulations negotiation is no longer possible. Certain compensation packages are simply outlawed.
High employment costs encourage employers to hire fewer workers. Some business may combine jobs or outsource services. This is bad news for the nation's capital where the unemployment rate, at 6.2 percent, is more than a percentage point higher than the rest of the country.
It's those people - the ones who miss out on having a job because of the high cost of employment - who are overlooked by much of the media. The Washington Post, for example, highlighted a security officer who "is looking forward to getting seven days of leave," and quoted Councilman Marion Barry (D., Ward 8) who, while lamenting that the regulations didn't demand more from businesses, called the effort "humane."
But these efforts are "humane" only if you focus exclusively on those who benefit and ignore those who lose out. The Washington Post mentions the concerns of Councilman Harry Thomas Jr. (D., Ward 5) who "feared that the legislation would force small businesses to fold and prevent others from starting," but there was no real life example to illustrate this concern. The businesses that will not open and the person who would have gotten that important first job are abstract concepts, but policymakers, and the D.C. public, should not discount their loss.
The greatest loss, of course, is the basic freedom to negotiate your own employment contract. Is it really government's job to make it illegal for me to accept a job offer that doesn't include paid sick leave? Apparently, that's a question that few in the D.C. government think to ask.