San Franciscans are patting themselves on the back for being the first in the nation to guarantee that workers receive six weeks of paid leave following the birth or adoption of a child. Such a benefit sounds compassionate—everyone wants parents to have time to recover from birth and bond with their new family member—but we are ignoring the very real costs created by this mandate. In reality, while this mandate will be a boon to some, it will be a real loss for others.
California already offers a government system to provide workers with 55 percent of their pay during six weeks of leave time. San Francisco now will require private employers with twenty or more employees to pay the rest of the salary during that period of leave.
Big businesses and lucrative tech giants that employ highly-skilled professionals may easily be able to shoulder such costs and offer more generous multi-month paid leave benefits. But small businesses and labor-incentive industries face bigger challenges. As Dee Dee Workman of San Francisco’s Chamber of Commerce put it: “[Small business owners] don’t necessarily have the resources, they can’t absorb the increases in cost, and they feel like it’s kind of relentless, it’s one thing after the next.”
Mandate champions brush off such pedestrian considerations, insisting leave benefits are “good for business.” But businesses actually have to tally up employment costs and make the numbers add up. Employers take into consideration not just a worker’s take-home pay, but also the costs associated with benefits and employment taxes. When any one of these costs increase—for a new benefit mandate, a higher minimum wage, or a new payroll tax—businesses have to compensate. They can try to raise prices on consumers to increase revenue, but that can only be taken so far before consumers take their business elsewhere. Businesses can cut other costs by reducing take-home pay, eliminating other benefits or consolidating their workforce.
In fact, one reason why wages have stagnated during recent years is that a growing share of total employee compensation is going to fund benefits rather than take-home pay. In 2009, 30.3 percent of businesses’ total average employee compensation costs (about $8.90 per hour), went to benefits; in 2015, about 31.5 percent of compensation costs (about $10.50 per hour) went to benefits, rather than take-home pay. If benefit costs hadn’t gone up, those extra dollars per hour could have gone to workers in the form of higher wages. Certainly that’s an option that some workers would have welcomed.
Higher employment costs also mean fewer job opportunities, particularly for people with less job experience and fewer skills and education who end up priced out of the job market. San Francisco cheered its higher minimum wage as a way to fight poverty, but residents should note that this higher minimum wage also meant fewer entry-level positions. As Stephen Bronars explained in Forbes:
Restaurant employment grew much less rapidly than in other sectors in San Francisco in the past year. In addition, had restaurant employment grown at the same rate as in the rest of the U.S., there would be 2,520 more restaurant jobs in the San Francisco metro division.
Economists estimate that minimum wage laws have resulted in between 100,000 and 200,000 fewer jobs nationally. Those concerned about reducing poverty and income inequality need to balance the benefits some enjoy from higher wages against the hundreds of thousands who are out-of-work as a result. They should keep in mind that those who can’t find jobs not only lack a paycheck entirely, but also are losing out on those critical skill-building opportunities that lead to future, higher paying positions.
Women’s advocates should also note that women shoulder more of the economic downsides of such mandates. Certainly many women will welcome additional time off and pay during maternity leave, but they’ll pay a price in constricted employment opportunities. Paid leave advocates point to family friendly policies in Europe, but ignore the full extent of their impact on women’s economic prospects. Research shows that women tend to see lower wages, fewer jobs, and less advancement as a result of this kind of employment mandate.
Progressives celebrating San Francisco’s new mandate will focus on stories about women enjoying more financial security during a longer maternity leave. Yet they shouldn’t ignore those women who won’t be able to get a job or make ends meet on a lower salary—including women who have no intention of becoming parents—as a result of this new burden on employers. Their stories are just as real.