Sickening employment policies

The New York Times reports this morning on how the spread of H1N1 and other illnesses is assisted by crummy sick leave policies.

Public health experts worried about the spread of the H1N1 flu are raising concerns that workers who deal with the public, like waiters and child care employees, are jeopardizing others by reporting to work sick because they do not get paid for days they miss for illness.

Firms clearly face a dilemma with these policies. On the one hand, sick leave helps to curb the spread of illnesses among employees, possibly raising output (or at least reducing losses associated with illness). On the other hand, sick leave promotes absenteeism (e.g., people calling in "well"). Economists call this "moral hazard," which in this case translates loosely as "if you offer it, they will cough."

An underlying problem is that firms cannot completely observe employees' health. It's difficult for a firm to determine whether an employee really is sick, and requiring employees to submit independent documentation of an illness is costly and impractical.

There is also a good possibility that firms and employees undervalue this benefit. A contagious disease is a classic example of a negative externality--a economic harm whose costs aren't fully borne by the immediate parties. Workers fail to consider the harm that they are causing their coworkers and others by showing up sick; firms fail to consider the harm that their sick employees may be causing customers, commuters, and others.

As an estimated 39 percent of workers lack sick leave, there's some evidence that sick leave is under-provided.

Even when sick leave is available, firms sometimes discourage its use. The Times article describes the policies of, who else, Walmart.

At Wal-Mart, when employees miss one or more days because of illness or other reasons, they generally get a demerit point. Once employees obtain four points over a six-month period, they begin receiving warnings that can lead to dismissal.

In addition, when Wal-Mart employees call in sick, their first day off is not a paid sick day (although workers can use a vacation day or personal day), but the second and third days are paid.

In this case, Walmart imposes a cost in terms of demerit points and lost personal/vacation leave for sick days, creating a clear disincentive to using those days.

In the end, the choices come down to having employees use too many sick days or too few. This employee's vote would be for too many.