For Better or Worse? The Economic Implications of Paid Sick Leave Mandates

Abstract

Public calls for a national paid sick leave policy continue to mount in the United States. Using the staggered adoption of local and state mandates, we document an average increase of 1.5% in employment following the enactment of a paid sick leave policy. As predicted, workers with ex ante lower access to paid sick leave drive the employment effect. Several mechanisms can explain our findings. Paid sick leave mandates are associated with a decline in labor turnover, an increase in the labor supply, and an increase in household income, which creates positive spillover effects on local markets. Moreover, firms exposed to the mandate experience a significant increase in operating profit – benefits firms may not be able to achieve through voluntary actions, in the absence of a mandate, due to adverse selection.

Keywords: paid sick leave, employment, labor turnover, labor productivity, financial health

JEL Classification: G51, I18, J21, J23, J32, J63