Mandated Sick Pay: Coverage, Utilization, and Welfare Effects

Abstract

This paper evaluates the labor market effects of sick pay mandates in the United States. Using the National Compensation Survey and difference-in-differences models, we estimate their impact on coverage rates, sick leave use, labor costs, and non-mandated fringe benefits. Sick pay mandates increase coverage significantly by 13 percentage points from a baseline level of 66%. Newly covered employees take two additional sick days per year. We find little evidence that mandating sick pay crowds-out other non-mandated fringe benefits. We then develop a model of optimal sick pay provision along with a welfare analysis. For a range of plausible parameter values, mandating sick pay increases welfare.

Keywords: labor costs, unintended consequences, moral hazard, fringe benefits, employer mandates, medical leave, sick leave, sick pay mandates, National Compensation Survey (NCS), welfare effects, optimal social insurance, Baily-Chetty

JEL Classification: I12, I13, I18, J22, J28, J32