TANSTAAFLOA

by Don Boudreaux on April 21, 2013

in Reality Is Not Optional, Regulation, Seen and Unseen, Work

Here’s a letter to a reader who describes herself as a high-school teacher in Iowa:

Ms. Ellen __________

Dear Ms. __________:

You object to my favorable mention, on my blog, of Richard Epstein’s criticism of mandated paid sick leave.  The crux of your objection is that Epstein “ignores the likelihood for businesses to pay for the expenses of [paid sick leave] from their profits.”  You concede that businesses might respond as Epstein argues, but regard such a response as “not likely” because “businesses need workers.”

With respect, I believe that the possibility that you regard as a “likelihood” is a practical impossibility, if only because few firms consistently earn abnormally high rates of return.  But there’s a deeper problem with your assumption that government can create benefits for workers merely by mandating that such benefits be supplied.

Suppose government were to mandate that workers receive the out-of-pocket costs of their paid-sick-leave packages not from their employers but from supermarkets.  Every worker who takes sick leave would present a voucher to a supermarket.  The voucher would be from his or her employer and would entitle that employee to receive from a supermarket a bundle of cash equal to the wages that the worker would have earned had he or she worked rather than taken time off.

Is it conceivable to you that supermarkets would simply absorb these higher mandated costs without taking countervailing actions – such as raising the prices charged for groceries and by limiting the number of people who shop in their stores?  (Supermarkets, after all, need customers.)  I assume that you agree with me that supermarkets would indeed react in ways that their customers find disagreeable.  But, then, why are you a fan of mandated paid-sick-leave policies of the sort that Epstein criticizes?

I don’t claim that my supermarket hypothetical is fully analogous to the paid-sick-leave policies that you endorse.  But my hypothetical is nevertheless relevant because it exposes as naïve the assumption that government can arbitrarily impose higher costs on businesses without those businesses reacting in ways that shift much of the burden of the mandated higher costs from themselves onto others, such as consumers or workers.

Firms as employers are no more likely than are firms as retailers to absorb without negative reactions higher mandated costs.

Sincerely,
Donald J. Boudreaux
Professor of Economics
  and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

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