Mandated Sick Pay: Coverage, Utilization, and Welfare Effects

To enable more employees to take paid sick leave, a dozen states have passed sick leave mandates over the past decade in the United States. This paper evaluates empirically and theoretically the labor market effects of these sick pay mandates. To this end, we use governmental firm-level data specifically designed to pinpoint labor compensation, including fringe benefits. Using the National Compensation Survey along with difference-in-differences models in an event study design, we estimate the impact of state-level mandates on actual coverage rates, paid and unpaid sick leave use, labor costs, and non-mandated fringe benefits. We find that the mandates are effective in increasing coverage and reducing inequality in the labor market. As a result of the mandates, sick pay coverage increases significantly by 18 percentage points from a baseline level of 66% in the first two years, but then plateaus over the next four years. Newly covered employees take two additional sick days per year, increasing labor costs by 21 cents per hour worked for marginal employers. However, 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 and illustrate the relevant trade-offs when assessing possible welfare effects. Incorporating our heterogeneous reduced-form estimates in a sufficient statistics approach, we discuss possible welfare effects across types of jobs and industries.