THE SMITH CENTER

for Private Enterprise Studies

One Cheer for California's New Mandated Leave Bill

by

Charles Breeden

Department of Economics
Marquette University and
Visiting Research Scholar
Center for the Study of Public Choice
George Mason University

I am, alas, a free-market economist of long-standing. I am also giving a cheer (only one) for California's recently enacted law that requires up to six weeks paid leave for employees with family emergencies. This is the bill that many in the business community and most conservative commentators consider anathema. Perhaps some explanation is in order.

First, the likely effects of the act.

An earlier federal act, the Family and Medical Leave Act (1993) guaranteed the return of jobs of workers who took time off without pay for family emergencies. Given the state of the job market from 1993 to roughly the present, we can presume that this federal act has had little moment: only an employer who is an idiot would consider not taking back an experienced worker when the alternative is to go into the job market and face the uncertain labor skills, unknown personal habits, and zero on-the-job experience of a new hire. That's if the firm can find someone to whom to make an offer.

This California bill mandates that whenever such leaves are granted, the employees will continue to be paid out of a fund paid for by the workers themselves. Perhaps you've noticed, as I have, that this last bit of detail (fund for paying for the leave comes from workers' wages) has been strangely missing from many news accounts of the California act. But that's how it works. It is an insurance fund of sorts, with the state administering the fund and presumably deciding on the merits of claimants and so forth. You wonder what all the fuss is about if the workers pay for it themselves?

Many firms no doubt think this measure is a Trojan horse and that at first opportunity, the employers will be asked to pony up a 'fair share' for the fund or even pay for it entirely. Probably more likely though will be firms' fears that the leave act will encourage employees to take more time off and it certainly will do that. That means more expensive and inexperienced temps, more customer complaints, more missed deadlines, you get the picture.

The truth is that when making employment and compensation decisions, firms look at 'unit labor costs': the sum total of employment-related costs including hiring/firing, training, fringes, direct wages, and indirect payments into unemployment funds etc. If in any way the state of California mandates something that could have existed, but didn't, through the voluntary contractual arrangement between workers and firms, there will be some loss involved. Some small losses will be to firms and some small losses will be to employees who would have preferred not to have the policy and who will pay into but never draw out of the fund. And likely some small employment effects as a few firms decide they've had enough with California and just leave. This does happen. Thus for firms the bill is an unmitigated bad and for employees, a mixed good/bad outcome.

Now, especially in light of the effects, the reason for a cheer.

We are one nation and simultaneously we are a curious mix of fifty individual states, each with its own legislative body and state supreme court. You don't have to be an expert on the Federalist Papers to remember that the idea of leaving states certain rights and law-making responsibilities was part of the original grand plan and was enshrined in the US Constitution. Fifty independent laboratories in law making. Chaotic at times, but in the winnowing, sifting and debating that goes in the academic, judicial, and political communities over the wisdom of laws like California's current paid leave bill, we do expect that the truth will more often than not find its way to the surface. So what's wrong with California having a paid leave bill anyway?

Governor Davis is reported to have said "Californians should never have to make the choice between being good workers and being good parents" that this bill will help them avoid. This is as ridiculous a statement as I've read in some time. Apparently, Governor Davis has never been a parent or has never worked while a parent (or has been a parent but never worked?). Ignoring the false and clearly rhetorical either-or aspect of the statement, anyone who has ever had children and held down a job has had to face the inescapable tradeoff between the two. This is of course especially true of females who in our society continue to provide the majority of child care. This bill will do essentially zip to change this fact of contemporary life.

So the motive for the bill at least from the highest levels, might have been something other than a genuine concern for welfare of the workers. So what? Let the experiment begin. Let California mandate the entire tab for paid leave on the employer if they want. And let's see if we can observe over time if the workers get something for nothing.

My bet is that common sense and a clear eye are all we need to figure this one out, as usual.

By the way, note that only one cheer is being offered, not two and certainly not three. If I resided in California there would be no cheer, but I reside in Wisconsin where we allow the firms and employees to work out the details of their leave policies themselves. I don't wish ill for the people of California but I do want to thank them for undertaking at their own expense, this experiment in social engineering from which the rest of the country will profit. And who knows, perhaps the measure will not create incentives for opportunism by employees, will not reduce employment, will not reduce wages and will not drive businesses to locate in other states. Right?