Yukonomist: Who should pay for paid sick leave?

Keith Halliday

Prior to the pandemic, a Canadian visiting Japan might have been surprised that so many people regularly wore masks while commuting or going about their day-to-day business.

Back home, masks were just for hospital staff. If you had the sniffles, you bucked up and went to work. Even if that meant sneezing around the office and sharing the flu with your workmates.

People would brag that they never took sick days.

That seems disgusting and anti-social today. Who wants a sniffly colleague breathing a random virus all over you? From what COVID-19 has taught us, it looks like our Japanese friends had it right all along.

Pandemics change attitudes. Campaigns against public spitting were successful after the Spanish Flu pandemic a century ago. Putting a spittoon in your store or office, once a common practice, would seem positively medieval today.

As reported in the News last week, two MLAs from the Liberal-NDP alliance released a report recommending that we change the way we deal with sick leave. They suggest ten days of paid sick leave for all Yukon workers, also covering the self-employed and so-called “gig” workers such as independent contractors and people who make a living from online platforms such as Uber.

Fairness is a big issue with paid sick leave. According to an informal online poll on the government’s consultation website, about half of respondents said they already had paid sick leave at work. Half did not.

The idea is that encouraging sickly workers — especially those currently without paid sick leave — to stay home is good for the workers, as well as for their colleagues, customers and public health in general.

This makes sense. The question is how much it will cost and who will pay for it.

The report, prepared by a consulting firm from Victoria with funding from the Yukon government, is light on these important details. A pile of money is at play. Yukon workers earned $1.5 billion in wages and salaries in 2020. Rough math assuming everyone works five-day weeks suggests that the upper end of the cost for the proposed sick leave policy is $60 million a year, if everyone takes the full ten days. Of course, not everyone will do that, but even a quarter of this sum is a major new government program or expense for employers.

The report mentions possible “co-funding” models where the cost is shared by employers and the government, but not how much of the burden each would bear. Nor how much such a program would cost to administer, including audits and fraud controls.

Such a program could be fully paid for by the private sector or by the government, or somewhere in between.

Keep in mind that a government program would apply not just to employees without paid sick leave today. Employers who already offer paid sick leave would participate too, possibly transferring their costs to the public purse.

Deciding who should pay is a tricky question. In our system, workers and employers are free to negotiate many terms of employment. But we also have a long tradition of public regulation of hours, working conditions and mandatory employer contributions to Employment Insurance (EI) and the Canada Pension Plan (CPP).

The way paid sick leave improves public health by limiting disease transmission also means there is a broad public interest at play.

There are also a bunch of economic questions. For example, if the cost is borne by employers then what are the implications for jobs and small business?

Consider this scenario. It is 2023 and the usual seasonal flu viruses are circulating as well as the next (hopefully mild) variant of COVID-19. The new policy will encourage the average employee to take more sick days than they did in pre-pandemic years, and these will be paid.

Suppose we are in a world where employers pay all sick leave costs, and there is a small business owned by Employer Y with one employee: Employee X.

Employee X gets ill several times during the year and takes the full ten days paid sick leave. This is good for public health.

But it also means that Employer Y will have to pay both the sick Employee X and their replacement on these sick days. Two weeks of pay is not a trivial amount. If your gut reaction is that the business owner should pay, think about how you would feel if the government told you that your contribution to the Yukon’s public health involved you paying two weeks of salary for the person at the desk beside you if they got sick.

In effect, this increases the cost per hour of work the employer receives each year. That’s on top of rising market wages thanks to the labour shortage, and the higher-than-inflation increases in employer CPP and EI payments that just kicked in.

Employer Y could decide to not hire a replacement. This will be more manageable for large knowledge-work organizations than small customer service businesses. A graphic designer might be able to design twice as many logos after their sick day. A plumber can’t snake twice as many drains. In the latter case, the employer also loses the profits generated by the plumber’s customer visits.

Meanwhile, suppose the other employers down the street from Employer Y have employees that don’t get sick. In effect, unlucky Employer Y has borne the full cost of the new public health policy while society at large benefits.

Note that we don’t make the employer pay for some other bad-news events. If Employee X gets cancer, for example, it is the taxpayers in general who pay for chemotherapy in our public healthcare system. If Employee X has a child and signs up for the new low-cost childcare, the taxpayers in general fund the childcare subsidy.

In general, it is usually better for broad social programs to be paid for by the taxpayers than the employer. That way more of the burden is distributed and mostly falls on well-paid individuals and highly-profitable businesses. Requiring employers to pay is disproportionately burdensome for small and low-profit businesses, and also introduces an extra element of risk into being an entrepreneur. It could eventually flow through into fewer jobs, lower wages or higher prices as employers respond to the added cost and risk.

It may also make sense to cap the daily rate covered by a government program at an amount not too far above the minimum wage. This would fully protect low-pay workers and their employers, but share the burden with well-paid workers and their firms (many of whom already provide some paid sick leave).

Nonetheless, governments sometimes decide to impose such obligations on businesses. It keeps the expense out of the annual government deficit figures, and it can be popular to stick it to profit-seeking capitalists. The second-order effects on jobs, wages and prices don’t happen until later and are difficult for voters to discern.

We’ll see how the NDP and Liberal negotiations go, and what the Yukon government decides to do.

In the meantime, the salespeople for automated checkout systems and digital restaurant ordering kiosks will be adding a new bullet on “higher human healthcare costs” beside the one on rising CPP and EI costs to their pitches.

Keith Halliday is a Yukon economist, author of the Aurore of the Yukon youth adventure novels and co-host of the Klondike Gold Rush History podcast. He is a Ma Murray award-winner for best columnist.